Why third party cover is important in car insurance

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Driving in India is a luxury; however, it also comes with its own perils. Third party insurance comes in handy in the event of your vehicle being involved in an accident. Third-party insurance, which is also sometimes referred to as ‘act-only’ insurance is a statutory requirement for all vehicle owners as per the Motor Vehicle Act. It is a type of insurance cover where the insurer offers protection against damage to the third-party vehicle, personal property and physical injury. The policy does not provide any coverage to the insured vehicle.

What does third party mean? The insurance is a contract wherein insured and insurer are the first and second parties. Any person who is not a party to the contract is a third party. In a third party car insurance, any person who has suffered an injury, death, disability or property damage due to the use of insured vehicle, is entitled to claim the compensation.

What does third party insurance covers? It protects the policyholder from potentially higher liabilities – legal, accidental and property related – faced in case of an unfortunate event with a third party. This policy also covers medical expenses in case a third party is injured in an accident or dies. This is primary car insurance with limited cover. When an accident takes place, the policyholder must inform the insurance company at the earliest and apprise them of the situation.

How Third Party Premium is charged? Premium for third party insurance is determined by the Insurance Regulatory and Development Authority of India and it remains the same for all general insurance companies. Premium rates vary based on your car’s engine capacity. Third party insurance is an in-built part of all Comprehensive / package car policies.

Who are the beneficiaries? Third party policy is important because it covers the insured’s legal liability for death/disability/property damages. The victim can claim for compensation under ‘no fault liability’ or ‘fault liability’ provisions of the Motor Vehicles Act 1988. However, unlimited compensation is available only for bodily injury or loss of life. In case of damage to a property, the insurer’s liability is limited to maximum Rs. 7.5 lakh.

Personal accidental cover The most unfortunate outcome of a road accident is the car owner’s demise. Third party or Act Only policy also includes personal accident coverage of an owner-cum driver of Rs. 15 lakh, in the event of permanent disablement or death in an accident, while traveling, mounting, or dismounting from the car. Accidental cover for co-passengers is optional.

The compulsory nature of third party insurance is justifiable as it makes the process easier for the injured person to recover money from the insured/insurer. As this is a vanilla policy no customization is possible even on additional premium. However, a comprehensive car insurance policy is the best bet as it provides you extensive coverage and peace of mind when you are on the road. It gives you immense assurance and confidence to know that you and your car are taken care of, in case of any emergency.

(The author is managing director, Shriram General Insurance. Views expressed are personal)