Car insurance in India is regulated by the Insurance Regulatory and Development Authority of India, IRDAI, and the updated rules for 2026 tidy up several things that have long confused buyers. New cars must now carry a long-term third-party cover for a minimum of three years at the time of purchase, the No Claim Bonus is being put on a uniform grid that is easier to understand and to transfer between insurers, compulsory deductibles are standardised, and claim-settlement timelines are being tightened. Third-party premiums themselves are fixed by IRDAI, so they are the same base price across every general insurer. Separately, the Ministry of Road Transport and Highways is considering a proposal to raise third-party premiums by about 18% to 25% in FY 2025-26 — that one is a proposal, not yet law. This guide explains each change, what a deductible actually costs you, and the part that matters most on a used car: how the policy and the No Claim Bonus move when a car changes hands.
What Changed in 2026
The 2026 rule changes are less about raising or cutting prices and more about making car insurance predictable and portable. The four headline changes are a mandatory long-term third-party policy on new cars, a uniform No Claim Bonus grid, standard compulsory deductibles, and faster claim settlement. None of these are designed to make insurance more expensive in themselves; the aim is to remove gaps in cover and make it easier for a buyer to compare and to switch insurers without losing what they have earned.
It helps to start with the one fact every car owner needs to know regardless of the year: third-party insurance is legally required to drive any vehicle on Indian roads. Driving without it is an offence. Everything else in this article builds on that baseline — the new rules change how third-party cover is bought and renewed, not whether you need it.
Two parts of a car policy: A motor policy has two halves. Third-party cover pays for injury or damage you cause to others and is legally compulsory. Own-damage cover pays for damage to your own car and is optional but strongly advised. A "comprehensive" policy bundles both. The 2026 rules mainly reshape the third-party half and the No Claim Bonus that sits on the own-damage half.
Mandatory 3-Year Third-Party Cover on New Cars
When you buy a new car in 2026, you must take a long-term third-party policy with a minimum term of three years at the time of purchase. The reasoning is straightforward: a large share of cars used to fall out of cover in their second or third year simply because owners forgot to renew, leaving them illegal to drive and victims of an accident without recourse. Bundling three years of compulsory third-party cover at the point of sale closes that gap.
The own-damage portion does not have to follow the same three-year term. You can keep buying own-damage as an annual add-on if you prefer the flexibility of repricing it each year, which is where most of your No Claim Bonus discount applies anyway. So a common structure on a new car is a three-year third-party policy paired with a one-year own-damage cover that renews annually.
Why it matters to the wider market: Mandatory long-term third-party cover means more cars on the road carry valid insurance for longer. That is good for everyone, and it also means that when one of these cars enters the used market in a few years, its third-party cover is more likely to still be active — but you must still confirm that, because a policy can be cancelled or allowed to lapse on the own-damage side. To understand how comprehensive and third-party cover differ in practice, our explainer on comprehensive versus third-party insurance breaks down what each one actually pays for.
The Uniform NCB Grid and How NCB Transfers
The No Claim Bonus, or NCB, is a discount on your own-damage premium that you earn for every consecutive year you do not make a claim. It is one of the most valuable things a careful driver builds up, and historically the exact ladder of discounts could differ in presentation across insurers, which made it confusing to compare quotes and to carry the bonus when switching companies. The 2026 uniform NCB grid fixes this by putting the discount ladder on a common, transparent scale across insurers.
The typical NCB ladder
The bonus rises with each claim-free year and then plateaus. The standard structure climbs from 20% after the first claim-free year up to a maximum of 50% after five consecutive claim-free years. The table below shows the typical IRDAI NCB grid.
| Consecutive Claim-Free Years | Typical IRDAI NCB Grid | What It Means |
|---|---|---|
| After 1 year | 20% | First discount on own-damage premium |
| After 2 years | 25% | Bonus grows for staying claim-free |
| After 3 years | 35% | Discount more than a third off own-damage |
| After 4 years | 45% | Approaching the ceiling |
| After 5 years | 50% | Maximum NCB; held as long as you stay claim-free |
The single most important rule about NCB is this: it belongs to the person, not the car. You do not lose it when you sell your car, and you do not pass it to the buyer. Instead, you obtain an NCB retention letter from your insurer at the point of sale and carry your earned discount to your next car. The buyer of your old car starts fresh and earns their own NCB from year one.
NCB on a used-car sale, step by step: Before you transfer the policy to the buyer, ask your insurer for an NCB retention letter (also called an NCB reservation letter). This locks in your earned discount — say 50% after five claim-free years — for up to a set period so you can apply it to the own-damage premium on your next car. The buyer transfers the policy into their name on the own-damage portion at 0% NCB and builds their own bonus from there. Sort this out at the moment of sale, not weeks later.
Standard Deductibles and What a Deductible Costs You
A deductible, also called an excess, is the part of any own-damage claim you pay yourself before the insurer pays the rest. Under the standard 2026 structure the compulsory deductible is fixed at Rs. 1,000 for cars up to 1500 cc and Rs. 2,000 for cars above 1500 cc. It applies automatically to every own-damage claim — you cannot remove it.
The practical effect is that small claims are rarely worth making. If a minor scrape costs Rs. 4,000 to repair and your compulsory deductible is Rs. 2,000, you would only receive Rs. 2,000 from the insurer and you would lose your hard-won No Claim Bonus on renewal, which can be worth far more than the claim itself. For small damage, paying out of pocket and protecting your NCB is usually the smarter move.
Voluntary deductible — a double-edged choice: On top of the compulsory deductible you can opt for a voluntary deductible to lower your premium. It works, but it raises what you pay on every claim. It only makes sense if you are a confident, low-claim driver who would rather save on the premium each year than have a low out-of-pocket figure when something does happen. Choose it deliberately, not by default.
Third-Party Premiums and the Proposed 18-25% Hike
Unlike own-damage premiums, which insurers price competitively, the third-party premium is fixed by IRDAI. That means the base annual third-party price is the same whichever general insurer you buy from; companies cannot undercut each other on it. The base rate is set by engine size. The table below shows current base annual third-party premium examples.
| Engine Size | Base Annual Third-Party Premium | Notes |
|---|---|---|
| Up to 1000 cc | Rs. 2,094 | Small hatchbacks and city cars |
| 1000 cc to 1500 cc | Rs. 3,416 | Most popular mid-size cars and compact SUVs |
| Above 1500 cc | Higher slab | Larger SUVs and premium cars; priced above the 1500 cc rate |
Separately, the Ministry of Road Transport and Highways is considering a proposal to raise third-party premiums by about 18% to 25% in FY 2025-26, citing the rising cost of claims. It is important to be clear that this is a proposal under consideration, not a finalised rate. If it goes through, the base third-party figures above would step up accordingly; if it does not, they hold. Either way, because the rate is uniform across insurers, a hike would land equally on every buyer rather than rewarding shopping around on the third-party line alone.
Where you can still save: Since the third-party base is fixed, the part of your premium you can actually shop on is the own-damage cover and its add-ons — and the biggest lever there is your No Claim Bonus. A clean claim record and a retained NCB do more for your premium than switching insurers on the third-party line ever could.
Worked Example: What NCB Is Worth on a Used Car
Numbers make the No Claim Bonus concrete. Take a used car valued at about Rs. 8 Lakh whose own-damage premium, before any discount, works out to roughly Rs. 24,000 a year. The own-damage premium is the portion the NCB discounts; the fixed third-party premium sits on top and is unaffected by NCB.
| Scenario | Own-Damage Premium | NCB Discount | You Pay (Own-Damage) |
|---|---|---|---|
| No NCB (fresh start) | Rs. 24,000 | 0% | Rs. 24,000 |
| 50% NCB (5 claim-free years) | Rs. 24,000 | 50% | Rs. 12,000 |
On these figures a full 50% No Claim Bonus saves Rs. 12,000 a year on the own-damage premium of an Rs. 8 Lakh car — which is exactly why a seller should retain their NCB rather than let it vanish, and why a buyer should never assume the seller's bonus comes with the car. The bonus follows the seller out the door; the buyer starts from zero and builds it back up over five claim-free years.
Before you pay for a used car
A Vahan Verify report (Rs. 49) reads the VAHAN database and returns RC status, owner number, chassis and engine numbers and insurer details — so you can confirm the cover is live and the car is legally transferable in under 60 seconds.
What This Means for Used Car Buyers and Sellers
The 2026 rules matter most at the moment a car changes hands, because that is when insurance is easiest to get wrong. When you buy or sell a used car, the existing policy must be transferred to the new owner within the IRDAI-stipulated window after the sale. If that window is missed, the buyer can find themselves driving an uninsured car, which is both illegal and financially exposed. The transfer is a paperwork step, but it is not optional.
A lapsed policy is a red flag
When you are evaluating a used car, the insurance status tells you more than just whether you are covered. A policy that has been allowed to lapse means the car has spent time uninsured — illegal to drive and often a sign that the vehicle was off the road, neglected, or being sold in a hurry. It can also complicate the No Claim Bonus picture and the transfer. Before committing, confirm whether the policy is active or lapsed, who the insurer is, and that the registration record is clean. This is one of the cheapest and fastest checks a buyer can run: our deeper guide on the risks of a lapsed policy and lost NCB walks through what to look for.
The buyer's insurance checklist on a used car: Confirm the policy is active, not lapsed. Note the insurer and policy expiry. Check that the RC status is clean and the chassis and engine numbers match the papers. Agree with the seller on NCB retention before money changes hands — the seller keeps their bonus, you start fresh. Transfer the policy into your name within the IRDAI window after the sale. A Vahan Verify report at Rs. 49 surfaces the insurer and RC status straight from the VAHAN database so you are not relying on the seller's word.
For sellers, the discipline is simpler but just as valuable. Keep the policy live right up to the sale, hand over clean papers, and retain your No Claim Bonus with a retention letter before the transfer. A used car with an active, transferable policy and a clean registration record is far easier to sell at a fair price than one the buyer has to take on trust. As the proposed third-party hike works its way through consultation and buyers grow more cost-conscious, transparent insurance and a clean VAHAN record will increasingly separate the easy sales from the slow ones. For buyers who want to understand how a third-party hike could feed through to what they pay, our breakdown of the proposed third-party premium hike sets out the likely impact.
If you want a deeper mechanical and battery picture on top of the paperwork, an AI Vahan Inspection (Rs. 249) reads diagnostic condition for buyers who want more than a documents check — useful on higher-value cars where the cost is small against the purchase. But for insurance and ownership status specifically, the Rs. 49 VAHAN check is the fast first move every used-car buyer should make.
Buying a Used Car? Confirm the Insurance and Papers First
Vahan Verify (Rs. 49) returns a plain-English report in under 60 seconds — RC status, owner number, chassis and engine numbers, RTO and insurer — so you can see whether the cover is live and the car is legally transferable before you pay a rupee. It is the cheapest insurance you can buy on a used-car deal.
Frequently Asked Questions
Yes. Under the updated IRDAI rules for 2026, when you buy a new car you must take a long-term third-party cover with a minimum term of three years at the time of purchase. Third-party insurance is legally required to drive any vehicle on Indian roads, and the long-term rule removes the risk of a buyer forgetting to renew in the early years. The own-damage component can still be bought as an annual add-on if you prefer. For a used car, the existing policy must be transferred to the new owner within the IRDAI-stipulated window after the sale, so the cover never lapses during the change of hands.
No Claim Bonus belongs to the person, not the car. When you sell your car, you do not pass the NCB to the buyer; you can retain your earned NCB and carry it to your next car by getting an NCB retention letter from your insurer before the policy is transferred. The buyer, in turn, starts fresh on the own-damage portion and earns their own NCB from year one of claim-free driving. The 2026 uniform NCB grid makes this cleaner, because the discount ladder is now consistent across insurers, so the bonus is easier to understand and to carry when you switch companies. Always sort out NCB retention at the point of sale, not afterwards.
The compulsory deductible, also called the compulsory excess, is the fixed amount you pay out of pocket on every own-damage claim before the insurer pays the rest. Under the standard 2026 structure it is Rs. 1,000 for cars up to 1500 cc and Rs. 2,000 for cars above 1500 cc. It is automatic and applies to every claim, so for small dents it is often cheaper to pay the repair yourself and protect your No Claim Bonus rather than claim. You can also choose to add a voluntary deductible on top to lower your premium, but that increases what you pay per claim.
Before paying for a used car, confirm that the insurance is live and the registration record is clean. A Vahan Verify report at Rs. 49 reads the VAHAN database and returns the RC status, owner number, chassis and engine numbers and the insurer details, so you can see whether the policy is active or lapsed and whether the car is legally transferable. A lapsed policy on a used car is a red flag: it means the car has been uninsured, which is illegal to drive and may point to a vehicle that was off the road or neglected. Once the papers check out, you can transfer the policy to your name within the IRDAI window and sort out any No Claim Bonus retention with the seller.