Car Insurance: Here’s How the First-Party Is Different From Third-Party

Posted on: August 24, 2020, by :

Buying a car is considered a major milestone in a person’s life. You too may have a dream of owning a car, if you don’t already. The feeling of buying your first car is priceless. But with buying a car comes the responsibility of abiding by the motor laws of the country. As a car owner, one of the most important laws for you to follow is to get car insurance for your four wheeler with at least third party coverage. A car without a valid third party insurance cover is not allowed to drive on public roads.

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For the uninitiated, car insurance is a financial contract between the owner of a car and a motor insurance company wherein the latter promises to provide financial support in case the former’s vehicle gets damaged due to unforeseen events or he/ she incurs any third party liabilities. Moreover, it comes with a personal accident cover for the owner-driver of the car in case he/ she gets disabled or passes away due to the accident.

Whenever you see someone discussing car insurance, you may often hear the term ‘third party’. If you are not well-versed with insurance jargons, you may not know what the ‘third party’ may mean in the context of motor insurance. Let’s get to know everything about the different parties involved in an insurance policy and the major differences between them.

Different Parties Involved in Car Insurance

As mentioned earlier, car insurance is a contract between two parties. Every car insurance policy talks about third parties. Thus, every car insurance policy involves three types of parties:

  • First Party – In an insurance contract, the first party refers to the person who buys the insurance. Thus, the car owner is referred to as the first party in a car insurance policy. It is the first party who pays an insurance premium and makes a claim to receive benefits or compensation under the car insurance policy.
  • Second Party – The car insurance company from whom the car owner or the first party purchases the car insurance is referred to as the second party. It is the second party who promises to provide financial protection to the first party’s car in case of any loss or damages. In exchange, the first party is liable to pay a premium amount to the second party.
  • Third Party – Any person besides the first party and the second party is considered a third party under car insurance. It refers to any person who gets affected by the actions of the first party while he is driving the insured car. A third party can be anyone and does not have to be an acquaintance of the first or second party. For example, it could be a pedestrian walking on the street. Or the owner of a car moving in front of you. Under a car insurance policy, the second party is liable to pay for any injuries, loss or damages caused to the third party on behalf of the first party.

Remember that it is the first party who initiates a contract with the second party in a bid to buy the best car insurance policy for his vehicle.

Types of Car Insurance in India

Earlier, you may have read about the compulsory third party insurance cover that every car needs to legally have. To understand third party cover, you need to know about various types of car insurance policies. Broadly, a vehicle owner can purchase two types of car insurance plans. They are – First Party Car Insurance and Third Party Car Insurance.

  • First Party Car InsuranceFirst party car insurance refers to the type of car insurance that aims to benefit the first party. Also known as comprehensive insurance, it provides own damage cover that makes the second party liable for covering any loss or damages caused to the first party’s car due to unfortunate events, such as natural disasters (earthquakes, storms, etc.), manmade disasters (strike, vandalism, etc.), accidents, fire or theft. It also covers any third parties liabilities of the first party for causing property damages, bodily injuries or death of third parties in an accident. Besides, comprehensive insurance also provides personal accident cover to the first party in case he/ she suffers from a disability or dies in an accident caused while driving the car.For example, a cyclone creates havoc in your neighbourhood destroying everything in its path. Unfortunately, it ends up wrecking your car completely. With a comprehensive insurance policy, your car insurer will pay for the loss of your car and help you replace it with a new one.Apart from the basic coverage, first party car insurance also comes with a host of add-on covers for car owners. Add-on covers are the additional benefits that the first party can add to his/ her comprehensive insurance by paying a higher premium amount to the second party. Zero depreciation cover, engine protection, roadside assistance, garage cash cover, return to invoice, etc. are some of the add-on covers that are commonly available under the best car insurance plans.
  • Third Party Car InsuranceThird party car insurance refers to the type of car insurance where the policy benefit is provided to a third party. It enables the second party to pay any third party legal liabilities of the first party in the form of monetary compensation to the third party. The legal liabilities of the first party arise out of causing bodily injuries, death or property damages to the third party with his/ her car.For example, you hit a pedestrian with your car while driving in heavy rain. Legally, it will be your responsibility to pay compensation to the third party victim. With a third party car insurance policy, your insurance company will pay the third party on your behalf.In India, it is mandatory for every car to have at least third party cover to legally ply on public roads as per the Motor Vehicle Act 1988. If you don’t want to purchase first party or comprehensive insurance, you can stick to third party car insurance.

Difference Between First Party and Third Party in Car Insurance

To give you a better understanding, the following table represents the differences between the first party and third party under a car insurance policy. Take a look:

CategoriesFirst PartyThird Party
MeaningIt is the person who purchases a car insurance policy from an insurance companyIt is the person who is affected by the first person’s car and gets compensation from the second party on the first party’s behalf
Policy PurchaseIt is the first party who initiates the purchase of a car insurance policyA third party cannot purchase a car insurance policy. The moment he buys a policy, he will become the first party
Who It Can Be?A first party can be anyone who owns a four wheeler and buys the best car insurance to protect the vehiclesA third party can be anyone apart from the first and second party. For example, a person whose property has been damaged by the first party’s car
Legal MandateIt is not mandatory to cover the first party’s interest under car insurance as per the motor lawsIt is mandatory to cover third parties’ interests under four wheeler insurance as per the motor laws
CoverageA first party can be covered under personal accident cover and get own damage cover for his/ her car with a comprehensive insurance policyA third party can be covered under a third party car insurance policy
Insurance Benefits DispensedA first party receives insurance benefits only under comprehensive insurance as part of own damage coverA third party can receive insurance benefits under both first party and third party car insurance
Personal Accident CoverIn case of a car accident, the first party will get a personal accident cover of up to Rs 15 lakh from the second partyIn case of a car accident, the third party will get compensation from the second party up to an amount decided by the Motor Accident Claims Tribunal based on the extent of the damage caused
Property Damage CoverIn case the first party damages his/ her own property with the insured vehicle, even the best car insurance will not cover the property damages. Only damages to the car will be covered under comprehensive insuranceIn case of third party property damages, the second party will cover the damages up to Rs 7.5 lakh on behalf of the first party

In a Nutshell

A car insurance policy is signed between the first party (I.e. the car owner) and the second party (i.e. the car insurance company). The best car insurance for your vehicle depends on what kind of coverage you are looking for in your policy. Now that you know the differences between the first party and third party, you can easily decide whether you want coverage for only third parties or even for yourself and your car.