Did you know that back in 2020, India had the fifth-largest automobile industry in the world? And that our country had close to 300 million registered vehicles in the financial year of 2019? While this might sound a bit unbelievable at first, it is, in fact, true.
As per the General Insurance Council’s recent reports, around 60% of vehicles in India are still uninsured! This is despite third-party vehicle insurance being mandatory by law. There are many reasons Indians don’t buy third-party insurance (or any car insurance policy for the matter). But lack of awareness is the main culprit. In this article, we talk about third-party car insurance in-depth. We will cover its features, benefits, inclusions, exclusions, and more.
So, if you’ve been searching the web for ‘what is third-party insurance?’ or ‘how does third-party insurance work?’, keep reading!
Key Takeaways
- Third-party car insurance offers financial protection against third-party liabilities arising from property damage, vehicle damage, injury, or death.
- According to the Indian Motor Vehicles Act, it is compulsory by law to have third-party insurance.
- An annual (yearly) premium has to be paid to the insurance provider to enjoy the policy benefits.
- The premium of 3rd party insurance depends on factors like vehicle specifications, Insured Declared Value (IDV), coverage features, geographical location, and more.
Third-Party Car Insurance: The Basics to Keep it Rolling
While we are going to discuss third-party insurance plans in detail, it’s best to start with the basics. First, let’s understand how these policies work:
A third-party insurance plan is the most basic type of car insurance policy. It is also mandatory as per section 146 of the Motor Vehicles Act of India, 1988. It provides financial protection against third-party liabilities resulting from vehicle damage, property damage, physical injuries, or death.
Here’s an example:
Let’s say that Aarushi, a 29-year-old woman from Delhi, recently purchased a new vehicle. During a visit to the local dealership, she comes to know that she needs to buy third-party insurance for her vehicle, so she does.
About a month later, Aarushi gets into a road accident with another individual. This said individual (let’s call him Sameer) not only suffers bodily injuries, but his car gets damaged too. The fault is partly Aarushi’s. She is liable to pay the expenses for Sameer’s medical expenses and the cost he incurs for vehicle repair.
But, since Aarushi purchased a third-party insurance plan, she won’t have to pay the expenses from her wallet. Instead, the insurance provider will offer financial compensation to Sameer. This means that while Aarushi is the first party, the insurer is the second party, whereas Sameer is the third party.
So, that covers how third-party insurance works. You should also know that you need to pay an annual premium to receive the benefits of the insurance plan. Although the premium sum is calculated (and decided) by the insurance provider, it depends on the following factors:
| · Your geographical location, as premiums are typically higher in metro cities. |
| · Your vehicle’s technical specifications – model, variant, fuel type, safety features, and Insured Declared Value (IDV). |
| · Personal aspects, such as your age, gender, profession, and car insurance claim history. |
| · The coverage benefits of the 3rd party car insurance plan. |
Now that we’re done discussing the basics of third-party insurance let’s move ahead!
Features of 3rd Party Car Insurance to Keep Your Wheels Happy
Like all other insurance policies, even third-party insurance has some key features that every potential policy buyer must be aware of. Thus, here’s a look at some common yet essential features of 3rd party insurance plans:
- A third-party car insurance plan offers all car owners basic protection against any third-party liabilities that may arise due to an accident, fire, explosion, or theft. However, some insurance companies also cover damages caused by natural calamities, such as earthquakes, floods, etcetera.
- Since purchasing third-party insurance in India is necessary by law, the premiums are largely affordable, especially compared to other types of car insurance plans.
- A third-party insurance plan is also referred to as liability-only car insurance and act-only car insurance.
- If you purchase third-party car insurance, you cannot file a claim for damages caused to the insured car or yourself. That is only possible if you have personal damage (also known as own damage) or comprehensive car insurance.
- Another great feature of this policy is that today, you can buy third-party car insurance online from the comfort of your home. The best part? The process is quick, easy, hassle-free, and also saves you a few extra bucks. However, you also have the option to buy 3rd party car insurance offline if that’s what you’d prefer.
Did You Know?
A 2019 study indicated that 67.1 percent of vehicle accidents took place in the rural regions of India, whereas only 32.9 percent were recorded in urban areas!
Benefits That You Enjoy by Purchasing 3rd Party Car Insurance
While buying third-party insurance is not optional in our country, it is important to know the benefits you can enjoy, as this will also help you choose the right policy. So, let’s look at some of the many advantages of purchasing 3rd party car insurance:
Financial Assistance When You Need it the Most
It goes without saying that legal liabilities, especially those involving a third-party individual, can become a financial burden rather quickly. Rather, it can even lead you to bankruptcy if things get out of hand. However, having third-party insurance can protect you from such situations, as you can pay off any legal liabilities by using the financial aid provided by your insurance company.
You Fulfil the Legal Mandate
As we’ve discussed several times, buying third-party insurance is a legal requirement across all states in India. Thus, investing in a good 3rd party insurance plan not only fulfils the legal mandate but also protects you from having to pay for any third-party liabilities. If you really think about it, it’s nothing but a win-win situation!
Third-Party Insurance is Cost-Effective
If you compare third-party insurance to other car insurance policies available in India, you will find that the former is more cost-effective. This means that the premiums for 3rd party car insurance are not as high as you’d think, plus you get to enjoy excellent financial benefits. However, since various factors are considered while calculating your premium, it might be best to not set your expectations too high.
A Load of Service Benefits
No matter which insurance provider you buy third-party insurance from, you will receive a few service benefits with the policy. Don’t know what that means? Well, service benefits include things like 24 x 7 customer service support, hassle-free and cashless claims, online renewals, a wide network of garages, and more. So, when you’re exploring third-party car insurance plans online or offline, always ask about the included service benefits.
How Well is Your Car Covered, or Not Covered? (Inclusions and Exclusions)
When buying third-party insurance, it is important to consider the plan’s coverage benefits. So, to help you select the right policy, we will now list the common inclusions and exclusions of third-party car insurance.
| Inclusions | Exclusions |
| • Vehicle Damage – If you (the owner of an insured car) are involved in an incident resulting in damage to the third-party individual’s vehicle, the insurer will cover the expenses incurred by the person. However, this will only be applicable if you (the driver/owner) are at fault. | • Damage to Own Vehicle – A third-party car insurance plan does not provide financial coverage for damage caused to your own vehicle, be it due to an accident, theft, explosion, or natural disaster. |
| • Property Damage – In case you’re involved in an accident that causes damage to a third party’s property (a kiosk, shop, or boundary wall, for example), then the insurance provider will cover said damages. | • Driving Under the Influence – The policy does not cover third-party liabilities if you are found to be driving under the influence of alcohol or drugs. |
• Bodily Injury – If you accidentally cause bodily injuries to a third-party person while driving your (insured) car, the insurance policy will cover their medical expenses. However, if the incident results in a disability, the Motor Accidents Claim Tribunal will decide the compensation sum. | • An Invalid License – If you are found driving with an invalid license at the time of the incident, you cannot file a claim. |
| • Accidental Death – When a car accident involving the owner of an insured vehicle leads to the accidental death of another individual, the third-party insurance policy will cover the financial compensation. | • Geographical Location – When an incident covers outside the geographical limit of your third-party insurance plan, you are not eligible to file claims. |
| • War and Nuclear Events – A 3rd party insurance policy does not cover any third-party liabilities arising out of war or nuclear events. | |
• Contractual Liability and Substantial Loss – You cannot file for a claim if it results from a contractual liability or substantial loss. |
You should know that some insurance companies also offer personal accident coverage. This means that if you suffer from a disability due to an accident, the insurer will provide a sum as compensation.
Similarly, in the unfortunate event that you die while driving your vehicle, your family will receive financial compensation for the same.
Now that you’ve been through both lists, make sure you keep an eye out for these inclusions and exclusions when buying third-party insurance.
Word to Remember
Insured Declared Value (IDV)
Insured Declared Value is a vehicle’s current market value minus its depreciation value. IDV is calculated when you buy car insurance, and it is also the total amount (sum insured) of your policy.
Before You Zoom Forward
We think that about covers everything there is to know about third-party car insurance, which also means that you’re now ready to buy one! However, always remember to weigh the benefits, features, inclusions, and exclusions of each plan carefully, or you might end up regretting your decision later.
FAQs
No, you cannot skip buying third-party insurance even if you are a responsible driver. It is a legal requirement to purchase the policy.
Only the owner of a vehicle who is registered with the RTA can buy third-party car insurance.
Typically, a third-party insurance policy has to be renewed every year. However, the tenure might differ from one insurer to another.
No, there are no riders available with a third-party car insurance plan. However, you can opt for riders if you purchase a personal damage policy or comprehensive policy.
In case you are found driving without a valid third-party insurance policy, you will have to pay a fine or serve jail time, or both.
