When you are looking to buy an insurance policy for your motor vehicle, one of the questions that will surely cross your mind is whether you should purchase the legally mandated third-party insurance plan or go for a comprehensive motor insurance policy that provides more wide coverage.
To find out the answer to this question, it is important to understand how both these policies differ from one another.
So, let's begin!
What is Comprehensive Motor Insurance Policy?
A comprehensive motor insurance policy offers financial protection against any loss/ damage caused to the insured vehicle, as well as to a third-party individual or their property.
Benefits of a Comprehensive Motor Insurance Policy
There are a lot of benefits of purchasing a motor insurance plan, like -
It offers protection to your vehicle against a wide range of risks. A comprehensive policy covers both the damages caused to the vehicle as well as the third party. Also, it gives you the option to add various add-ons like zero depreciation, consumable, roadside assistance covers, etc. to enhance the cover further.
For example, Mr Malhotra wanted maximum coverage for his car. He lives in a flood-prone area and wants to make sure his car’s engine is protected by his insurance policy. He bought a comprehensive car insurance policy and added an engine protector add-on for extra coverage for his engine.
It provides compensation in case of accidental disability or death.
It also protects you against any third-party damage or liability.
What Does It Cover?
A comprehensive policy provides coverage for the damages caused to your insured vehicle because of unforeseen events like an accident, theft, etc. Here, the maximum amount the insurance company will pay will depend upon the Insured Declared Value (IDV).
Any injury to a third party person or damages to the property of a third party is also covered under a comprehensive policy. In case of injury or death of a third party, the amount that the insurer will pay to the third party or their family will be decided by the court. There is no upper limit for the same. And in case of damage to the third-party’s property, the amount that will be compensated cannot exceed the limit of Rs. 7.5 lakhs.
A comprehensive policy allows you to opt for several add-ons that provide extra protection to the vehicle. You can opt for add-ons like Zero depreciation cover, Engine Protector, Roadside Assistance cover , No claim bonus protector, Return to Invoice Cover, etc. with a comprehensive policy.
No Claim Bonus Discounts
For every year you don’t make a claim, a comprehensive policy will offer a No Claim Bonus discount on the premium amount.
What Is Not Covered?
Wear And Tear
Any damages caused to the vehicles due to the factors like ageing, or wear and tear etc. are not covered.
Drink And Drive
Any damages that occur because the driver of the vehicle is under the influence of alcohol are not covered by the insurance company.
Claims arising out of consequential damage to the vehicle are not covered.
Meaning, suppose Akshay’s car breaks down in the middle of the road and requires to be towed to a garage. The tyres of his vehicle got damaged due to rear towing. The damage to the tyres will be considered as a consequential damage and will not be covered by the policy.
Driving Without A Valid Licence
The insurance company will not cover any loss/ damages if the person driving the vehicle does not have a valid driving licence.
War And Other Activities
Damage caused due to war, terror attack, civil war, radiation, nuclear material/weapons, etc. are not covered under a comprehensive insurance plan.
Vehicle Being Used For Any Other Purpose
Damages caused if you use the vehicle for any other purpose apart from the one specified in the insurance certificate will not be covered.
So, these are some situations that are excluded under a comprehensive insurance policy.
Please note, the list of exclusions we have shared above is not exhaustive. So, ensure you check the policy wordings before you go ahead and make the purchase.
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What Is A Third-Party Only Policy?
As the name suggests, a third-party only policy offers protection against loss/ damage caused to the third party individual or property. As per the Motor Vehicles Act, 1988, it is mandatory to have a third-party policy.
What Does It Cover?
Death Or Bodily Injury To The Third Party
A third-party only policy will provide coverage in case of death or permanent disability to the third party.
For instance, you hit Arjun's car while driving. Arjun gets severely injured. He passes away while on the way to the hospital. In this case, the third-party policy which you have purchased will pay compensation to Arjun's family.
Damage To Third-Party Property
The policy provides protection against any damages caused to the property of the third party, like their vehicle, shops, boundary wall, etc.
Suppose Raj has purchased a third-party insurance plan for his bike. While he’s on his way to work, his bike hits Gaurav’s car. In this case, the insurance company will compensate Gaurav for the damages caused to his car as per the limits mentioned in the policy.
What Is Not Covered?
So, these are some situations that are not covered under a third-party insurance policy.
Any damages caused to your own vehicle will not be covered.
For instance, Kinshuk’s car meets with an accident. He damages a shop’s gate as well as his car. In this case, the third party will only cover the shopkeeper’s damages - and not pay for the expenses Kinshuk will have to incur to repair his car as the policy is a third-party only policy.
Limitations As To Use
For the claim to be payable under a third-party insurance policy, every vehicle needs to operate within the 'limitations as to use'. These are limitations on the use of the vehicle other than their purpose. Here are a few examples to help you understand better -
- Car given out for hire: If any loss/ damage occurs when the car has been given out for hire is excluded.
- Carriage of goods: If the vehicle is used for carriage of goods, except personal luggage in case of a private vehicle and suppose any damages occur at that time, they will not be covered under the third-party insurance policy.
- Organised Racing: When the vehicle is used for organised racing contests and the vehicle gets damaged, the costs won't be covered.
- Pace Making: If the vehicle gets damaged when it is used for setting a pace for race competition, the insurer won't pay for the damages.
- Speed Testing: Using the vehicle for testing the speed and damages caused at that time will not be covered.
- Reliability Trials: When the vehicle is used to test the driver for his skills and it is damaged, the cost of damage won't be covered by the insurer.
- Trading Of Vehicles: Using the vehicle for any purpose in connection with trading of vehicles is not covered under a third-party insurance plan
Driving Without A Driving Licence
Accidents caused when the vehicle is driven by a driver without a valid driving licence are not covered.
Claims arising out of contractual liability, i.e., if you enter into a contract with someone else, are not covered.
Accident In The Course Of Employment
If death or disability has occurred to an employee in the course of employment, a third-party policy won't be liable to pay.
Driving Outside The Geographical Area
If the damage that has occurred is not within the geographical area that is mentioned in the policy document, it will not be covered.
Passengers Not Covered
The insurance company won't compensate for any death or disability caused to any passenger (apart from the employees) travelling in the car under third-party insurance.
War And Nuclear Weapons
Any damage caused to the third-party property or individual due to nuclear weapons or war is not covered under a third-party insurance policy.
Comprehensive Policy vs Third-party Only Policy: What's The Difference?
|Third-Party Only Policy
|Comprehensive policy provides protection against own as well as third-party damages.
|A third-party only policy provides protection against any third-party liabilities only.
|The policy covers any damages caused to the policyholder’s vehicle as well as any damages caused to the third party or their property.
|This policy covers damages caused to the third party individual or their property only.
|It is not mandatory to have a comprehensive policy.
|It is mandatory to have a third-party insurance policy.
|You can choose a variety of add-ons with a comprehensive policy.
|There are no add-ons available with a third-party only policy.
|Premium is higher as it provides a wider coverage.
|Premium is lower as it provides a limited cover.
|Discounts are available in the form of no-claim bonuses, voluntary deductibles, anti-theft devices, etc.
|No discounts are available.
Frequently Asked Questions
1. Is it possible to switch from a third-party policy to a comprehensive policy?
Yes, you can switch to a comprehensive policy from a third-party policy, but before doing so your vehicle will have to undergo an inspection which will be scheduled by the insurance company.You must note that if there are any dents or scratches on your vehicle then the insurance company may deny you insurance. They will ask you to repair your vehicle and ask you to raise a request for reinspection before giving you a policy, so you must ensure that you are getting all the pre-existing damages of your vehicle repaired.
2. Is a third-party policy cheaper than a comprehensive policy?
Yes, the third-party policy is cheaper as compared to a comprehensive policy. A comprehensive policy covers both own damages as well as the third-party component. But, a third-party-only policy will only cover the damages caused to the third party or their property, any damages caused to your vehicle will not be covered.
3. Can IDV be selected in a Third Party policy?
No, IDV or an Insured Declared Value can be selected only with a comprehensive or stand-alone own-damage policy as it will be the maximum amount that you can claim if your vehicle is damaged beyond repair or if the vehicle is stolen.
A third-party policy only covers you against the damages caused to a third party or their property. Any damages that are caused to your vehicle won’t be covered under a third-party policy. Hence, you cannot select IDV in a third-party policy.
4. Why is it mandatory to have a third-party policy?
As per the Indian Motor Tariff Act, having a third-party policy is mandatory. Imagine you meet with an accident that damages the property of a third party or even worse, the third-party loses their life, in such a scenario you will be asked to pay compensation for the damages that you have caused to them. If you do not have a third-party policy you will have to bear all the expenses from your own pocket and also face legal complications. Having a third-party policy will also ensure that the victim is adequately compensated.
5. Why is purchasing a comprehensive policy better?
A comprehensive policy offers a broader range of coverage as compared to a third-party policy. You can also add several add-ons to a comprehensive which will enhance your coverage.
6. What are the add-ons available with a third-party policy?
The only add-on you can add with the third-party policy is a Personal Accident cover.
7. Can I drive my vehicle, if I only have a third-party policy?
As per the norms, having at least a third-party policy is mandatory for driving your vehicle on the roads. So, yes, you can drive your vehicle if you only have a third-party insurance policy.