What is Third-Party Car Insurance? How Does it Work?

Posted on: October 28, 2020, by :

Car insurance is a crucial document for all four wheeler owners in India. No matter the size of your car, you need to purchase a motor insurance policy with either third party or comprehensive insurance under the motor laws of the country. As per the Motor Vehicles Act, 1988, it is illegal to drive a car in India which does not have a valid third party insurance cover. You may land yourself in a lot of trouble for driving an uninsured car.

Third-Party Insurance

If you are new to the motor insurance domain, you may not be aware of what third party insurance cover may comprise of. This article aims to provide you with everything that you need to know about third party car insurance.

What is Third Party Car Insurance?

Third party car insurance is a motor insurance contract that ensures protection of the vehicle owner against any unforeseen accidental liabilities arising out of third party vehicle damages, property damages, bodily injuries, disability and death. Also known as Liability-Only policy or Act-Only policy, this type of four wheeler insurance provides coverage benefit only to third parties as a result of accidental damages or injuries caused by the policyholder’s car.

For the uninitiated, a car insurance policy consists of three parties –

  • First Party or the owner of the car who purchases the car insurance policy.
  • Second Party or the motor insurance company that promises to provide financial aid in exchange for a car insurance premium.
  • Third Party or any other person who may get injured or whose property may get damaged by the policyholder’s car in an accident.

Thus, a third party car insurance is a legal contract between the first party and the second party where the latter promises to pay for any legal liabilities of the former arising out of third party injuries or damages in return for a premium price.

Besides third party insurance, car insurance also provides comprehensive insurance to your car. This type of insurance covers third party liabilities along with the own damages suffered by your car. The good part is that all comprehensive insurance provides third party insurance cover. This is because third party insurance is the minimum coverage that every car insurance policy should consist of.

Unlike comprehensive insurance, no insurance benefit is provided to the policyholder‘s car under third party insurance. This means even the best car insurance providers will not cover damages to the policyholder’s car under the third party insurance cover. They will only provide you with financial assistance to clear any third party legal liabilities in case you have caused third party injuries or property damages.

What is Covered Under Third Party Car Insurance?

A third party car insurance policy provides a car owner with the following coverage:

  • Third Party Bodily InjuriesIn case a third party person gets injured during an accident caused by your car, you will be legally liable to pay for his/ her medical expenses. A third party insurance policy will cover this liability of yours and pay for the medical expenses incurred by the injured third party on your behalf. If unfortunately, someone dies or gets disabled due to the accident caused by your car, your motor insurer will pay compensation to the victim’s family on your behalf.
  • Third Party Vehicle DamageMost car accidents result in a collision with other cars. In case your car has damaged another car during an accident, you will be required to pay for its repair as per the law. With third party car insurance, the cost of repairing the third party person’s damaged car will be paid by your motor insurance company.
  • Third Party Property DamagesIf you lose control of your car while driving, you may end up colliding with someone’s property and damaging it. For instance, the boundary wall of a house. In such a case, you will have to legally pay for the damages caused to the third party property. Luckily, your car insurance company will pay for the cost of damage repair if you have third party insurance cover.
  • Personal Accident Cover to the Owner-DriverSome of the best car insurance providers offer personal accident cover to the car’s owner-driver as part of third party insurance. This cover ensures that the car’s owner-driver receives compensation from his/ her insurer in case he/ she suffers from accidental death or disability. This cover is a part of comprehensive insurance and is not offered by all motor insurers under third party insurance. Thus, you should confirm with your insurer whether or not they provide personal accident cover under third party insurance. 

How Does Third Party Car Insurance Work?

The third party car insurance works with an aim to reduce the financial burden on the vehicle owner in case of an accident. The best car insurance companies cover the accidental third party liabilities of the policyholder by paying compensation to the affected third parties.

When your car causes an accident injuring third parties or damaging their properties, you are supposed to inform your insurer about the mishap. The sooner you inform, the better as you will be able to get financial assistance at the earliest. The,n you will be required to raise a third party claim with your insurer. The motor insurance company may send a surveyor to assess the injuries or property damages caused to the third party. Once the claim has been approved by your motor insurer, they will pay for the liabilities or the compensation to the third party on your behalf, thus, saving you from sudden financial burden.

Suppose you are driving your car and suddenly a dog comes in front of your vehicle. In an attempt to avoid hurting the dog, you steer your car to the side hitting the vehicle next to you. The car you hit gets damaged in the collision. In this case, the owner of the damaged car is a third party whose property has been damaged by your car. You will be legally liable to pay for the damages caused to the third party, which may get expensive depending on the extent of the damage. This is the time when a third party car insurance will come to your rescue. Your car insurance provider will pay for the damages caused to the third party vehicle on your behalf if you have third party insurance cover.

Why is Third Party Car Insurance Mandatory?

The number of car accidents is constantly on the rise. A lot of those accidents involve third parties whose end up suffering a loss due to an accident caused by no fault of theirs. They are within their rights to claim compensation for the injuries or damages suffered as a result of the accident. The compensation amount can be quite high, ranging from a few lakh to more than a crore depending on the extent of damage caused. The compensation is mostly on the higher side in case of accidental injuries, disability or death of a third party person. Not every car owner has the financial ability to pay a high sum of money as compensation to the affected third party.

This is where third party car insurance comes to play. People with a liability-only policy can pay off their third party liabilities with the help of their motor insurance provider. The third party car insurance ensures that the third party victim gets compensation and in doing so, you don’t go bankrupt. This is one of the biggest reasons why third party insurance cover is mandatory for all cars in India.

Benefits of Third Party Car Insurance

Take a look at some of the benefits of buying third party insurance for your car:

  • Provides Accidental Legal Liabilities CoverageThird party insurance covers your accidental legal liabilities arising due to damaging a third party property or vehicle. It also covers your legal liabilities if an accident caused by you results in a third party person’s disability or death. Although the benefit is paid to the third party, it saves you from the unforeseen financial burden that may have arisen in the absence of the third party policy.
  • More Pocket-FriendlyA third party car insurance policy is more affordable than a comprehensive insurance policy. The reason is simple – greater the benefits, higher is the cost. A comprehensive car insurance plan provides you with broader coverage by offering own damage cover. This makes comprehensive  insurance expensive than third party insurance that covers third party liabilities only. Thus, third party car insurance is more pocket-friendly.
  • Ensures Peace of MindAccidents don not occur after a warning. The fear of incurring third party liabilities in case of an accident can eat away the fun of driving a car. But with third party car insurance, you no longer have to worry about any unforeseen third party liabilities that may create a financial burden. This is because your motor insurer will provide you with financial assistance if you incur any accidental legal liabilities. Thus, third party policy ensures your money and allows you to enjoy your drive to your heart’s content.

In a Nutshell

Third party car insurance is no less than your fairy godmother who will help you out of financial distress caused due to third party accidental liabilities. Therefore, you must get yourself a third party policy from one of the best car insurance companies in India. You can also go for comprehensive insurance for your car if you want all-round safety.