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Owners of China's 130 million motor vehicles, including motorcycles and tractors, will have to buy motor insurance from July one, the government said.

Owners of family cars will have to pay up to USD 137 worth for insurance per vehicle each year if the cars are for family use, China Insurance Regulatory Commission (CIRC) said.

China's first compulsory insurance rules allow for the policy holder and those named on the policy a maximum of USD 7,500 in cover for property damage, injury and death.

Different insurance rates were imposed on 42 categories of vehicles, including family cars, corporate non-commercial vehicles and public transport vehicles.

At present, only about 35 per cent of business vehicles are covered for damage and injury, commission said.

A total of 98,738 people were killed and 470,000 injured in 450,000 traffic accidents last year, causing 1.88 billion yuan in direct economic losses, official data shows.

"The policy is a little expensive for me," Liu Yang, who drives a private car, said.

"The coverage of USD 250 for potential damage is the main reason for such high premiums," said insurance professor at Central University of Finance and Economics Hao Yansu.

"As 80 per cent of traffic accidents result in some damage, insurers can hardly reach the break-even point, even with such a premium," he added.

The CIRC has approved 22 domestic insurers to offer the new policies. Foreign insurers will not be allowed to offer policies as China made no promises to open up the compulsory insurance business in its World Trade Organisation commitments.