Third-Party Insurance

What is Third-party Car Insurance?

Third-party insurance, also referred to as limited liability insurance, is a type of insurance plan covering the insured party against legal liabilities arising from accidental injuries suffered by a third-party individual or damage caused to a third-party's property. For car owners in India, this policy is a statutory requirement as per the Motor Vehicle Act of 1988.

Reasons Why Third-party Car Insurance is a Must Have

Road accidents can occur any time, and being in an accident can be incredibly stressful. Third-party insurance comes to your aid in such a time. The insurance plan pays for the damages and cost of repairs of the third-party's property in an accident caused by you. Also, if the accident results in fractures or causes bodily injuries to the third party, the insurance provider bears the costs associated with the third party's hospitalization. As such, the policy reduces your financial and legal liabilities. It also ensures that you are on the right side of the law, preventing you from facing penalties.

Inclusions

Third-party insurance covers the policyholder under the following situations:

• Costs associated with injuries sustained by third-party individuals due to accidents caused by your car
• Death of the third-party due to an accident caused by your car
• Cost of damages caused to the third-party's property
• Costs associated with compensating the owner or driver of the insured car if an accident leads to disability or death.

Exclusions

A 3rd party insurance is a basic insurance plan. It does not cover you, the policyholder, against the following:

• The costs associated with damages endured by your own vehicle or belongings in the vehicle in the event of an accident.
• The costs associated with losses incurred in case your vehicle is subjected to natural calamities or human-made incidents.

However, you can upgrade the third-party insurance plan by investing in a comprehensive car insurance policy that offers a bouquet of additional covers.

How Does Third-Party Car Insurance Work?

Third-party is an insurance term used to indicate an unknown person who may be injured, or whose vehicle may be damaged, due to an accident caused by you. While the policy covers the third party, it would be in your name as you would be paying its premiums. Thus, as the policyholder, you are the first party and the insurance provider, the second.

If a third-party individual suffers injuries or if their property is damaged due to an accident caused by your car, you are held legally liable for the same. In such a situation, your insurance provider comes to your rescue and eases you of the stress of legal and financial burdens.

In most cases, if the incident is severe, the third party may choose to file a claim if an accident leads to hospitalisation or property damages.. Your claim will be registered in the Motor Accident Claims Tribunal Court, which decides the quantum of compensation based on the injuries sustained by the third party or damages caused to their property. The insurer bears the costs up to a pre-determined, capped limit, and if the cost exceeds the said amount, you have to pay the remaining amount from your pocket.

As per the law, you must always keep a copy of your car insurance policy documents in your car. Having the insurance details and policy number handy goes a long way in reducing your stress in such tension-filled situations.

Filing a Third-Party Insurance Claim

The process of claiming third-party insurance largely remains the same whether you are a third-party in an accident or whether you have caused an accident. Here's how you should go about it:

• Register an FIR:-The first thing you need to do is to register a First Inquiry Report (FIR) with your nearest police station. Remember to obtain a copy of the same, as you will have to submit it along with other documents while filing your insurance claim.
• Inform the insurer:-As soon as you complete the formality with the police, you must inform the insurer about the accident and your desire to file a claim. The insurance provider will ask you to share your policy number and other details such as your name, registered mobile number, customer number, etc. So, ensure you have your policy handy before calling the insurer.
• The investigation:-The insurer immediately sets off to investigate and verify your claim. It always helps to take photographs of the injuries sustained by all parties in the accident, as well as the damages caused to both the vehicles and properties of both parties. If you are a third-party in the accident, you must note the vehicle number and policy details of the party causing the accident. All this information helps strengthen your case and expedites the claim filing process.
• The claim is settled:-After verifying your claim, the insurer settles it as per the ruling of the Motor Accident Claims Tribunal. In India, third-party insurance claims are settled by the Motor Accident Claims Tribunal, which also determines the compensation amount. For accidents leading to personal injuries or death, there is no upper limit on the compensation amount. However, in the case of limited liabilities, the claim amount is capped at Rs. 750,000 in case an accident leads to losses or damages of third-party vehicle or property.

Factors Affecting Third-Party Insurance Premiums

As mentioned earlier, the premium amounts for third party policies are not determined by the insurance provider. They are fixed by the IRDAI, and are the same across all insurance companies. However, there are two critical factors that affect your third-party insurance premium payments. They are as under:

• The age of your car:-Insurance premiums for brand new cars are typically lower. However, as your car becomes older, the premium amounts start to increase. This is because older cars are more prone to wear and tear than newer cars.
• The type of the car and its cubic capacity:-Insurance premiums for luxury cars, coupes, SUVs, and MUVs tend to be higher than those for compact cars like hatchbacks, sedans, and hybrids. Besides the car type, the cubic-capacity (CC) or your vehicle’s engine is also considered while calculating third party insurance premiums. Essentially, the premium for a vehicle with a lower cubic capacity (1000 cc, for instance), would be lesser than a vehicle with a higher cubic capacity (1500, for instance).
• Third-party cover premium calculator:-Third-party insurance premiums are determined by the Insurance Regulatory and Development Authority (IRDAI). The body regulates the premium amounts annually. The premiums are determined based on the factors mentioned above and the cubic capacity of each car's engine. Here's a premium calculator to help you determine the third-party insurance cost:
• The claim is settled:-After verifying your claim, the insurer settles it as per the ruling of the Motor Accident Claims Tribunal. In India, third-party insurance claims are settled by the Motor Accident Claims Tribunal, which also determines the compensation amount. For accidents leading to personal injuries or death, there is no upper limit on the compensation amount. However, in the case of limited liabilities, the claim amount is capped at Rs. 750,000 in case an accident leads to losses or damages of third-party vehicle or property.

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Advantages of Third-Party Insurance

Third-party car insurance brings with it a wide array of advantages. They are as under:

• It permits you to drive legally all over India:-To drive a car in India, you must have active and valid third-party insurance. Without this insurance, you are barred from driving. If you are caught driving your vehicle without an active third-party insurance plan, you may be subjected to a heavy fine, a jail term, or both. Your license may even be revoked.
• It reduces your financial and legal liabilities:-Third-party insurance takes care of the expenses and legal liabilities you would have to face if you caused an accident. Instead, the insurer intervenes and relieves you of these burdens. Such a plan specifically comes to your rescue when an accident leads to serious injuries, temporary or permanent disabilities, or the death of the third party. It also bears the costs of damages endured by the third-party's vehicle or property.
• Provides additional personal accident cover:-By opting for a personal accident cover add-on with your third-party insurance, you can ensure that both you and the third-party individual are covered against the costs of hospitalisation and treatment. This further allows you to protect yourself and your loved ones if an accident leads to permanent injuries or death of the policyholder. In such an event, the insurer compensates your family members.
• Protects you against unexpected expenses:-In the absence of a third-party car insurance plan, not only will you be charged with breaking the law, but you will also have to bear the expenses related to hospitalisation for the third party from your own pockets. You will also have to bear the costs associated with the damage endured by the third-party's vehicle or property. All these unexpected expenses can result in you exhausting your savings.

Limitations of Third-Party Insurance

While third-party insurance covers you against legal and monetary liabilities, it has a few limitations:

• It doesn't cover own vehicle:-Your third-party insurance plan does not cover you for any damages endured by your vehicle in an accident. In case your vehicle is damaged, you have to bear the costs of the same from your own pockets.
• It doesn't cover you against natural calamities:-Natural calamities such as floods, earthquakes, tornadoes, tsunamis, etc., can cause considerable damages to your vehicle. However, you cannot file a claim if your car is damaged due to a natural calamity.
• It does not cover you against human-made incidents:-Third-party car insurance also does not cover your vehicle against various kinds of human activities. These include car theft or incidents that can cause vehicular damages such as riots, strikes, vandalism, terroristic activities, etc.