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 the store doesn’t face a loss because of your negligence. For instance, if you drop a bluetooth speaker while examining it and this causes it to break, you will have to pay for it. Similarly, if you are driving and happen to cause any damage to another person’s vehicle, they may ask you to pay the costs for the same. Say you bumped into another car and broke its tail lights because you didn’t hit the brakes in time. You will be liable to pay for the repair or replacement of the same!
Paying for the damage 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 a safety net which provides security and peace of mind that you will be financially covered. And, 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 repair of the property or the compensation, as decided by the court that needs to be paid when 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 you will incur. A third-party insurance policy covers physical injury, death, and property damage.
For instance -
Maneesh holds a 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 sustained severe damages 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 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 permanent disability. Your third-party coverage will compensate that person based on the amount awarded by the court.

Accidental Death

Similarly, in case of accidental death, there is no limit on the 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 mandated by the law, which is why 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 an accidental death or permanent disability. This add-on cover can be added to comprehensive car insurance policies and third party policies by paying an additional amount in 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 sustained severe damage and the repair costs amount to around Rs 3 lakh. This damage costs shall be taken care of by the third party insurance cover.

  • 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. Now, when you apply for the claim, the insurance company tells you…

    ‘This isn’t covered by your policy. You will have to foot the expenses yourself.

    When you hear something like this, it is easy to feel betrayed - especially after you have invested in the policy for years. In order to ensure there are no such surprises at the time of a claim, it is extremely crucial to educate yourself about 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.

    Now that you've understood what 'exclusions' are, let's take a look at some 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 and damages his car. Since the policy doesn’t cover ‘own damages’, the policy won’t pay for the expenses Rajat might incur to repair his car.

  • Out-of-warranty Driving Licence

    Damages will not be covered if the person driving the insured vehicle has an out-of-warranty driving licence

  • 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 carriage of goods, except personal luggage in case of a private vehicle and any damages occur

    Reliability Trials: When the vehicle is used to test the driver for his skills and it is damaged.

    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 organised racing contests and the vehicle gets damaged.

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

    Speed Testing: Using the vehicle for speed testing.

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

  • Driving Outside The Geographical Area

    If the loss occurred is not within 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 as 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 a contractual liability, i.e., because of the policyholder entering 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.

  • Undesignated Driver

    If an accident takes place but the person driving the vehicle is not the designated driver or owner of the vehicle, then the policy won’t cover the expenses.

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

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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.

Questions about Car Insurance

Have Questions about Car Insurance?

Insurance would be much easier for you after browsing the list below.

The minimum coverage you are required to have depends on the state you live in. However, most states require at least liability insurance.

This varies based on a number of factors, including your driving record, the type of car you drive, and the amount of coverage you choose

Liability insurance covers other people’s injury and damage to their property in an accident.

If you don't have car insurance and are involved in an accident, you could be held liable for any damages caused. You could also face fines and penalties as per your state law.

The best way to save money on car insurance is to explore online and compare rates from different insurers. You can also choose to increase your deductible or opt for lower coverage levels.

Collision insurance covers damages to your car in the event of an accident. It typically costs more than liability insurance, but it can be worth it if you have a newer car.

Comprehensive insurance covers damages to your car that are incurred due to activities like theft or vandalism and not by accidents. It typically costs more than collision insurance, but it can be worth it if you live in a high-crime area.

Rental car coverage is not always necessary, but it can be helpful if you plan to rent a car often. This coverage can help you to pay for any damages that occur to the rental car.

Uninsured motorist coverage protects you in the event that you are involved in an accident with a driver who does not have insurance. Underinsured motorist coverage protects you in the event that the other driver does have insurance, but their policy does not cover all of the damages.

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