Third-Party Insurance - Inclusions And Exclusions

Whenever you visit a furniture or home decor store, you must have seen signs that say, “You break it, you buy it!” These are usually placed around glassware, electronics, or expensive products so that the store doesn’t face a loss because of your negligence. For instance, if you drop a bluetooth speaker accidentally while examining it and it gets broken, now you will have to pay for it.

Similarly, if you are driving and accidentally cause any damage to another person’s vehicle, they may ask you to pay the cost for the same. Say you bumped into another car and broke its tail lights because you didn’t hit the brakes on time. You will be liable to pay for the repair or replacement of the same.

Paying for the damages which you’ve caused to another person’s vehicle might prove to be expensive. This is where motor insurance helps you. You will be protected from any costs that arise from such a situation. It is a kind of safety net that provides security and peace of mind and covers you financially. It also ensures that the affected party doesn’t have to go through any hassles for the compensation they need.

What is third-party insurance? What is the scope of its coverage? Are there any situations that aren’t covered under third-party insurance?

Let’s have a look.

What Is Third-Party Insurance?

Third-party insurance is a type of motor insurance that covers any loss or damage caused to another person or their property because of your vehicle. It covers the financial costs of repairing property or the compensation, as decided by the court that needs to be paid in case you have injured a person.

It is important to note that the Motor Vehicles Act has made third-party insurance a mandatory requirement for every vehicle owner. You will be liable for legal repercussions if you don’t possess a valid third-party cover.

How Does Third-Party Insurance Work?

If your driving causes any kind of harm to a person or their vehicle, a third-party policy will cover the financial obligations which you will incur.

A third-party insurance policy covers physical injury, death, and property damage.

For instance -

Maneesh holds third-party insurance for his car. He was on his way to work when his car unexpectedly collided with another car. As a result, the driver of the other car died on the spot, and his car faced severe damage too. The third-party insurance will cover the cost of compensating the family members of the deceased person and the repair cost of the car. The amount of compensation shall be decided by the court.

Coverage Under Third-Party Insurance

  • Third-Party Liabilities

    A third-party liability arises when you are responsible for causing damages to another person or their property because of your vehicle.

    The following types of damages are covered -

  • Property Damages

    In the event of an accident; third-party insurance covers the damage done to the property of another person. It has a compensation limit of Rs. 7.5 lakhs.

    Let's see how the property damage is covered under different scenarios:

    Example 1:While parking your car, you hit and damage a food stall. You need to pay the owner Rs. 30,000 as compensation. The policy will cover the costs of the same.

    Example 2:Your car bumps into another car on the road, causing severe damage to the other person's car. In this instance, the insurance company will cover the repair costs of the other person's vehicle.

  • Accidental Bodily Injuries

    The policy also covers the costs arising from causing permanent disability to another person.

    For instance, while reversing your car, you accidentally hit a person waiting to catch a bus. The rear-end collision caused severe damage to the victim’s spine resulting in a permanent disability. Your third-party coverage will compensate that person based on the amount declared by the court.

  • Accidental Death

    Similarly, in case of accidental death, there is no limit on coverage. When your vehicle hits someone, and they die on the spot due to the impact, your third-party insurance will cover the cost of compensating the family members of the deceased person based on the compensation awarded by the court.

  • Personal Accident Cover

    A personal accident insurance policy is mandatory by law, and you should buy it along with your third-party insurance policy.

    This policy will cover the costs related to the vehicle owner-driver in the event of accidental death or permanent disability.

    This add-on cover can be added to the comprehensive car insurance policies and third-party policies by paying an additional amount of the premium.

    For instance,

    Sohail has bought a third-party insurance policy along with a Personal accidental cover add-on of Rs. 15 lakhs for his car. While driving, Sohail meets with an accident. This accident caused several injuries to Sohail and left him permanently disabled. The insurance company will compensate Sohail as per the limit stated in the policy. The other person’s car also faced severe damages and the repair costs amount to Rs. 3 lakh. These damage costs shall be taken care by the third-party insurance cover.

Talk to our insurance expert to renew your policy.

Exclusion Of Third-Party Insurance

Imagine you get into an accident and damage a third party's car. The owner asks you to pay Rs. 1 Lakh for the damages. You, however, are not worried about the expenses because you have a third-party insurance policy. You think the policy will pay for the damages caused by you. Now, when you apply for the claim, the insurance company tells you…

“This isn’t covered by your policy. You will have to bear the expenses yourself.”

When you hear something like this, you feel betrayed- especially after you have invested in the policy for years. To ensure there are no such surprises at the time of a claim settlement, it is extremely crucial to understand what is not covered under a third-party insurance policy.

Exclusions are situations that your third-party insurance policy doesn't cover and won't pay for the expenses.

Now that you've understood what 'exclusions' are, let's take a look at the below situations that are excluded under a third-party insurance policy-

  • Drink And Drive

    Any loss caused because the person who is driving the vehicle is under the influence of alcohol is excluded.

  • Own Damage

    If the insured’s vehicle or the insured himself/ herself has suffered some bodily injury- the policy won’t cover this.

    For instance, while Rajat is driving his car, he meets with a small accident that damages his car. Since the policy doesn’t cover ‘own damages’, Rajat has to incur the repairing cost for his car himself.

  • Out-Of-Warranty Driving Licence

    Damages will not be covered if the person driving the insured vehicle doesn’t have a valid driving license.

  • 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”.

    A few situations that won’t be covered by the policy

  • Carriage of goods: If the vehicle is used for the carriage of goods, except personal luggage in case of a private vehicle and if any damages occur, the claim will not be accepted.

  • Reliability Trials: When the vehicle is used to test the skills of the driver, the cost of damages will not be covered.

  • Car Given Out For Hire: If any loss/ damage occurs when the car has been given out for hire.

  • Organised Racing: When the vehicle is used for organized racing contests and the vehicle gets damaged.

  • Pace Making: If the vehicle gets damaged when it is used for setting a pace for a race competition.

  • Speed Testing: Using the vehicle for speed testing.

  • Trading Of Vehicles: Using the vehicle for any purpose in connection with the trading of vehicles.

  • Driving Outside The Geographical Area

    If the loss occurred outside the geographical area that is specified in the policy, it will not be covered.

  • War And Nuclear Weapons

    Any damage caused to the third-party property or individual due to nuclear weapons or war is not covered.

  • Consequential Loss

    Claims arising out of consequential damage to the vehicle will not be covered.

    For instance, your car meets with an accident and requires to be towed to a garage. While towing, the hood of the car gets damaged. The damage to the hood will be considered consequential damage and hence, will not be covered by the policy.

  • Unauthorised Usage

    Damage caused when the vehicle is being used for illegal activities, racing, etc. is not covered..

  • Contractual Liability

    Claims arising out of contractual liability, i.e., because the policyholder enters into a contract with someone, are not covered.

    For instance, Suraj has taken a loan from his relative, Akash. He has pledged his car for a specific time period against this loan. Now, Suraj’s car is damaged while being driven by Akash. Since contractual liability is excluded from third-party insurance, the damages caused to Suraj’s car will not be covered by the policy.

Please note -that the above list is not exhaustive, there could be additional exclusions in the policy. So, ensure you check the policy wording before you go ahead and make the purchase.

We are sure that you are now aware of why it is crucial to invest in third-party Insurance. Apart from being a mandatory requirement as per the law, it is also the best way to safeguard yourself financially from unanticipated expenses arising due to third-party liabilities in the event of an accident.

exclusion of health insurance plans

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