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What is Third Party Insurance?

Created on 02 Apr 2022

Wraps up in 5 Min

Read by 2k people

Updated on 10 Aug 2022

Our morning coffee is frequently accompanied by news of horrific road incidents around the country. While we are bombarded with breaking news and current items on all news outlets, we should take the time to consider why so many people are dying on the roadways.

One of the leading causes of road rage among new and experienced drivers has been identified as impatience while driving. 

If you own a car, you should have enough insurance to protect yourself in an accident. According to the Motor Vehicles Act, 1988, every vehicle must have the proper insurance to drive on the road in India. 

Insurance should be obtained for any vehicle used for social, domestic, or recreational purposes, as well as the insurer's commercial motor purposes. The Motor Vehicles Act makes motor third-party insurance, often known as third-party liability insurance or 'act only' insurance, a legal requirement. The policy's beneficiary is someone who is not one of the contract's two parties, namely the insured and the insurance provider. A 'third-party' cover is what it's called. 

The insurance does not provide any compensation to the insured, but it does cover the insured's legal liability for third-party death or disability, as well as property damage.

What is Third Party Insurance?

Motor third-party insurance, commonly known as third-party liability insurance or 'act only' insurance, is a legal obligation under the Motor Vehicles Act. Because the policy's beneficiary is someone other than the two parties involved in the contract, it's referred to as a 'third-party' cover (the car owner and the insurance company). The insured receives no benefit from the coverage. It does, however, cover the insured's legal liability for third-party death/disability as well as damage to third-party property.

Because third-party insurance coverage is required, all non-life insurance businesses are required to supply it. Automobile dealers in India arrange for full insurance coverage along with car registration. This comprehensive cover is an optional add-on to the necessary third-party insurance and protects the automobile owner from financial losses resulting from vehicle damage or theft.

Because damage claims are more common than third-party claims, the cost of a comprehensive policy is several times that of a standalone third-party policy. Until now, the premium for vehicle third-party insurance was calculated using a rate schedule issued by the Tariff Advisory Committee, an arm of the Insurance Regulatory Development Authority (IRDA). The motor tariff, on the other hand, has been abolished by IRDA. The amount of compensation awarded to the sufferer is mostly determined by the accident victim's earning potential.

How does third party liability insurance work?

Because third-party insurance coverage is required, all non-life insurance businesses are required to supply it. Automobile dealers in India arrange for full insurance coverage along with car registration. This comprehensive cover is an optional add-on to the necessary third-party insurance and protects the automobile owner from financial losses resulting from vehicle damage or theft.

Benefits of Third-Party Liability Insurance

There are many advantages to third-party insurance, let's look at the ones that you will be eligible for in case you wish to buy Third-party liability insurance for your vehicle.

  • Legal Driving Freedom and Stress-Free Driving

According to the Motor Vehicles Act of 1988, you must insure your car in order to lawfully drive on Indian roads. Getting this basic third-party insurance will save you money on expensive traffic fines. Furthermore, knowing that your insurer will cover any unforeseen legal and financial consequences coming from an accident gives you peace of mind when driving.

  • Insures the third-party involved in the accident for personal injury.

In the event of an accident in which you physically injure another person, or in severe circumstances, you become the cause of the third person's death or permanent handicap. The bearer of third-party insurance will be covered for any losses up to an infinite liability limit.

  • Assists in the saving of time, effort, and money

With just a few clicks, you can now purchase your preferred car policy from the leading car insurance companies from the comfort of your own home. This computerized approach eliminates the inconveniences of standing in lines, filling out lengthy forms, rushing from one counter to the next to complete work, and the enormous effort of travel, saving you time and money.

  • Provides coverage for the third-party involved in the accident's vehicle damage.

In the case of an accident in which the insured person damages a third-party vehicle, the insurer would offer coverage for the third-party vehicle up to Rs 7.5 lakh.

  • Protection against unwanted financial liabilities

Accidents are certain to happen on Indian roads due to the tremendous traffic, therefore purchasing a third-party liability insurance policy is a necessity. This will help you stay financially secure in the event of an unanticipated accident; being prepared is always preferable to regretting afterwards.

Third-Party Liability Insurance - Inclusions

  • A third-party auto insurance policy, as previously said, protects the third party against damages caused by the covered vehicle in the event of an accident. Injuries, death, and property destruction are among the losses.

  • Consider the following scenario: your insured vehicle is involved in an accident in which another vehicle is severely damaged. The individual who has been injured can then file a claim under your car insurance policy for compensation. This means that your insurance provider is responsible for paying for the third-party damages.

  • Third-party liability insurance is included in all car insurance policies sold in the United States. It's like a safety net that keeps you safe in the unlikely and highly unpleasant case of an accident in which someone else suffers a loss.

  • Along with third-party liability coverage, several insurance firms now provide personal accident coverage for the insured vehicle's owner-driver. From the insurer's perspective, this completes the liability-only policy's coverage and makes it more appealing to the customer.

Third-Party Liability Insurance - Exclusions

It is critical to understand what is excluded from your automobile insurance coverage so that you can make informed decisions during a claim. As a result, it's critical to go over your policy paperwork thoroughly.

The following are examples of situations that are typically excluded from a third-party car insurance policy:

  • Intoxicated driving: Damages produced by a driver who is under the influence of drugs or alcohol are not covered by third-party liability automobile insurance.

  • Staged accident: If an accident was purposefully staged, it will not be covered by insurance.

  • Illegal act: The insurance company will not honor the claim if the motorist was under the age of 18, driving without a valid license, or driving on the wrong side of the road at the time of the accident.

  • Commercial purposes: If the insured private car was being utilized for commercial reasons at the time of the accident, the insurer will deny the claim for car insurance.

  • Car thefts and damages: Third-party liability insurance does not cover accidents involving the covered vehicle or its owner-driver. Theft of the insured vehicle is not covered either.

  • Other reasons: The insurance provider will not honor the claim if the vehicle's car insurance was expired at the time of the accident. Additionally, the liability-only plan does not cover normal wear and tear of the car as it ages, mechanical or electrical breakdowns, consequential damages, or driving outside of preset geographical restrictions.

Conclusion

Your favourite automobile will be practically useless and unlawful to drive without a basic car insurance policy, as the Motor Vehicles Act of 1988 makes car insurance mandatory. However, not everyone can afford comprehensive auto insurance for their vehicles, and other people don't even see the need for one. As a result, third-party liability insurance is ideal for many people who want to drive their automobile safely while also adhering to the law.

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Govind Singh

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Govind is an enthusiastic Management student, pursuing BBA from Christ University. He's a keen learner with strong academics and a passion for co-curricular activities. He wishes to up-skill himself in the broad domain of finance and business management.

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