Motor Insurance

When Does Third-Party Insurance Make Sense?

When Does Third-Party Insurance Make Sense?

As soon as you buy a brand-new car, you will need certain documents that are necessary to legally drive on the road such as - a Registration Certificate (RC Book) which proves that your vehicle has been registered with the government, and car insurance.

A Car Insurance Policy is basically a contract between you and the insurer that protects you against financial loss in case of an accident or theft.

Car Insurance Policies are of Two Types -

  • Comprehensive Insurance Policy
  • Third-party Insurance Policy

While buying car insurance, one of the biggest questions is whether to buy a comprehensive policy or an only third-party policy separately. A third-party insurance policy is mandatory according to government regulations, but you can choose whether or not to purchase a comprehensive policy that provides a wider coverage compared to a third-party insurance policy.

Although a comprehensive insurance policy may seem like a better choice, in some cases, third-party insurance is sufficient. Why so?

Let’s take a look!
 

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First, What is a Comprehensive Insurance Policy?

A comprehensive motor insurance policy provides financial protection against -

  • Any loss/damage caused to your vehicle, and .
  • Any loss/damage to any property or third party caused by your vehicle.
     

Coverage Provided Under Comprehensive Car Insurance Policy

The following situations are covered by a comprehensive insurance policy -

  • Own Damage

Comprehensive policies cover damage caused to your insured vehicle by accidents, thefts, man-made disasters, natural calamities or other unforeseen events.

  • Third-Party

Any injury to a third party person or damages to the property of a third party due to your vehicle is also covered under a comprehensive policy.

Compensation Rules

  • 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 Motor Accident Claims Tribunal, which is a court that awards claims for third party claims . As far as the compensation is concerned, there is no limit.

  • Property Damage

    The amount of compensation for damage to third parties' property cannot exceed Rs. 7.5 lakhs.
     

What is a Standalone Third-Party Insurance Policy?

Third-party policy offers protection against loss/ damage caused to the third-party individual or property. A third-party only policy will provide coverage in case of death or permanent disability to the third party.

It is mandatory to have a third-party insurance policy under the Motor Vehicles Act, 1988.
 

Coverage Provided Under Third-Party Insurance Policy

  • Accidental Death

    This policy will provide coverage in the event of an accidental death.

    There is no limit on coverage. The insurer will provide compensation to the deceased person’s family based on the amount decided by the court.

    For instance, Aman crashes into Manav's car while driving, and he passes away on the spot. The third-party policy you purchased will compensate Manav’s family based on the amount decided by the court.

  • Accidental Bodily Injuries

    In the event of an accident, if your vehicle causes permanent disability to another person, your policy will provide a compensation amount to them as decided by the court.

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

  • Third-Party Property Damage

    Any damage caused to a third party's property, such as a vehicle, shop, etc., is covered by the policy. There is a compensation limit of Rs. 7.5 lakhs under this policy.

    For instance, Payal has a third-party car insurance plan. While she is on her way to work, her car hits a shop. The insurance company will compensate the shop owner for the damages caused to his shop as per the limits mentioned in the policy.
     

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Why Should You Buy A Third-Party Policy?

  • It protects You Against Financial Liabilities

    A third party will shield you from any compensation that you might be legally liable for if you cause any death or injury to a third party or damage to their property. It gives you peace of mind knowing that you have adequate financial protection against the damage you may cause to another person in an accident.

  • It is a Legal Requirement

    If you drive without third-party insurance, you may have to face the legal consequences -

  1. Pay Rs 2000 fine the first time, and Rs 4000 if caught subsequent times, or
  2. 3 months imprisonment.
     

When Should You Consider Buying Only Third-party Insurance?

Although comprehensive insurance offers an extra layer of protection by covering your own damage in addition to third-party coverage, it is comparatively expensive. There may be times when you do not need such a broad coverage and so, paying a hefty premium doesn't make sense. right?

In such cases, you can evaluate purchasing a third-party policy that is easy on the pocket, rather than buying a comprehensive policy.

A third-party insurance is good enough -

  • If You Rarely Drive Your Car

    A third-party policy would be the best option if you are someone who occasionally takes your car out. Also, your car is parked in a location where there is a very rare chance of damage. Since you rarely use your car, and your car is parked in safe space, there is less likelihood of an accident happening, which makes it quite compelling to probably evaluate buying a third-party insurance policy.

  • If You Have An Old Car

    In India, 51 lakh vehicles are more than 20 years old and 34 lakhs are over 15 years old, according to the Ministry of Road Transport and Highways. To drive a 15-year-old vehicle on the road, your car will need a fitness certificate; if you fail the fitness test, you have the option to keep the car or scrap it, but you cannot drive it.

    The best thing to do if you plan on scrapping your old car in the near future is to buy a third-party-only policy instead of a comprehensive policy as purchasing a comprehensive policy seems pointless owing to its high cost.

  • If You Wish To Sell Your Car

    Purchasing a standalone third-party policy is a good idea if you are planning on selling your car soon. Buying a comprehensive policy and paying a higher premium is an unnecessary expense if you intend to sell your car.

  • If You Are A Safe Driver

    Third-party insurance can be purchased if you want to save on car insurance premiums and are confident in your driving skills, but you should do so at your own risk. No matter how good you are as a driver, road accidents sometimes happen due to the negligence of other drivers.
     

Summing Up!

While comprehensive insurance provides better coverage than a third-party policy, it may still seem like a waste of money if you own an old car or intend to sell it or rarely use one. A third-party insurance policy will suffice in such situations, saving you a great deal of money. Before you invest your hard-earned money, take time to evaluate your needs and the available options.

 

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