Most commuter scooters and bikes, such as a Honda Activa or a Hero Splendor Plus, fall in the 75cc to 150cc band. A six-year term adds one more year to the five-year price shown here, so confirm the final figure on the invoice.
A two wheeler insurance policy sold with a new bike usually joins this long third-party term with one year of own-damage cover. That one year ends long before the third-party part, and the renewal is a cost you pay every year after.
Why the Bank Asks for Comprehensive Vehicle Insurance
The bank asks for comprehensive vehicle insurance because the vehicle is the security for the loan. ICICI Lombard explains that the name of the lender is recorded on the registration certificate (RC) and on the policy until the last EMI is paid. The vehicle is pledged to the bank while you keep using it.
Third-party cover alone does not pay for damage to your own vehicle. So lenders often insist on own-damage cover as well to protect the asset they financed.
For your budget, this means the own-damage renewal is not optional while the loan runs. Plan for it every year until the last EMI.
Interest on Insurance Added to the Loan
Interest on insurance added to the loan is a cost many buyers miss. If the premium and add-ons are rolled into the loan amount, you pay interest on them for the full tenure.
Business Standard gives an example. A borrower who finances an extra Rs 50,000 for insurance and other products pays interest on that Rs 50,000 over the whole repayment period.
Two steps help here:
Ask whether the insurance cost has been added to the loan amount, and find the figure in the loan papers.
Pay the first premium from savings where you can, so it does not attract loan interest.
Mint also notes that buyers do not have to buy insurance from the dealer. Compare a few quotes before the loan papers are signed.
Return to Invoice Cover and the Loan Balance
Return to invoice cover pays the original invoice price of the vehicle if it is stolen or damaged beyond repair, instead of the lower insured value. For a buyer with a loan, this matters in the early years.
A new car loses value quickly. ICICI Lombard says a car can lose up to 20% of its value in the first year, and the insurer pays on that lower value after a total loss. If the loan balance is higher than that payout, you still owe the bank the difference.
GAP insurance, sold abroad to cover this difference, is not available in India, according to ICICI Lombard. The return to invoice add-on does a similar job. ICICI Lombard also notes it gives the most value on new vehicles when the drop in value is largest.
Weigh its yearly cost against the amount you borrowed and your down payment.
Loan Protection and Credit Life Cover
Loan protection or credit life cover pays off the remaining loan if the borrower dies during the loan tenure. It is optional, even when the bank offers it at the time of sanction.
Policybazaar explains how it usually works:
The cover equals the loan amount, and the lender is the one who receives the payout.
The premium is often added to the EMI.
In a decreasing cover, the amount covered falls as the loan is repaid, while the premium stays the same.
The Reserve Bank of India's 2026 conduct directions require lenders to take a separate consent for each product sold with a loan. India Policy Hub reports that the borrower stays free to buy the cover from any insurer.
Look in the loan papers for lines such as "credit shield" or "loan protection". If you already hold a term life plan large enough to cover the loan, the extra cover may not be needed.
Yearly Renewal Costs Over the Loan Tenure
Yearly renewal costs over the loan tenure come mainly from the own-damage part, since the third-party part was paid upfront. Note these points for each year of the loan.
The own-damage renewal is due every year, usually one year from the purchase date.
The IDV falls each year as the vehicle gets older, which lowers the own-damage premium.
The NCB (no claim bonus, a discount for every year without a claim) starts at 20% and rises to 50% after five claim-free years.
A claim on the policy resets the bonus.
Policybazaar gives an example. On an own-damage premium of Rs 14,000, a 50% bonus cuts Rs 7,000 from the renewal.
Do not lower the IDV only to get a cheaper quote. Policybazaar warns that a lower IDV means a smaller payout after a total loss or theft, and the loan balance still has to be paid.
Motor Policy Changes on 15 December 2026
Motor policy changes on 15 December 2026 split every private car and two-wheeler policy into four parts, each with its own price. Mint reports that IRDAI, the insurance regulator, is bringing in this structure following the Supreme Court's order.
Third-party liability, which stays compulsory
Personal accident cover for the owner, which stays compulsory
Liability cover for passengers in a car or riders in the back seat of a bike, which is optional
Own-damage cover, which is optional
Insurers must show the premium for each part and give a Customer Information Sheet. You will also sign a Customer Option Form listing the covers you chose.
For a buyer on EMI, this makes the renewal bill easier to check. Keep the bank's demand for own-damage cover in mind before dropping any optional part.
Frequently Asked Questions
Do I have to buy vehicle insurance from the dealer?
No, a buyer does not have to buy vehicle insurance from the dealer. You can compare quotes from other insurers, as long as the policy meets the bank's terms and carries the bank's name.
How do I remove the bank's name after the last EMI?
The bank's name comes off after you collect the NOC and Form 35 from the bank and submit them to the RTO. Then ask the insurer for an endorsement (a written change added to the policy) to update it.
Does the longer third-party term apply to a vehicle I already own?
The longer third-party term applies to new vehicles bought after the Supreme Court's August 2026 order. A policy already running on an older car or bike carries on as it is.
Does the no-claim bonus move with me if I change insurers?
Yes, the no-claim bonus moves with you when you change insurers at renewal. Before you switch, check that the new quote shows the bonus percentage you have earned.
What happens if the insurance lapses during the loan?
A lapsed policy leaves the vehicle uninsured and can mean an inspection before renewal and a higher premium. It also breaks the bank's condition that the vehicle stays insured.
Key Takeaways
The first premium covers several years of third-party cover. New cars now need four years, and new two-wheelers six, paid upfront.
Own-damage cover renews every year of the loan. The lender expects it because the vehicle secures the loan.
Insurance added to the loan attracts interest. Paying the premium separately avoids interest on it for the full tenure.
Loan protection cover is optional. Lenders must take separate consent, and you can buy cover from any insurer.
