Understanding third-party car insurance and why it’s mandatory

Posted on: Dec 3, 2021 | | Written by:

Understanding third-party car insurance and why it’s mandatory

Published on November 16, 2021. EST READ TIME: 3 minutes

Owning and driving a car in India comes with various responsibilities. Apart from following traffic rules, you must have third-party car insurance. You can get comprehensive insurance if you wish to protect your own car as well, but a third-party liability policy is legally mandatory and non-negotiable. So, what is third-party liability and why is it mandatory? Let’s find out.

What is third-party car insurance?

To understand what or who the ‘third party’ is, you first need to understand who the first and second parties are. The first party is the individual or policyholder. The second party is the insurer. The third party is any other individual. An accident may involve an individual who is at fault as well as an innocent party who suffers damage through no fault of theirs. This is where a third party car insurance policy comes to the rescue.

Why is third-party insurance mandatory?

If every vehicle on the road has third-party insurance, then victims of accidents can get adequately compensated without denting their finances. Similarly, the one at fault also does not suffer significant financial losses as the insurance policy covers it. In an ideal scenario, every vehicle should have a third-party liability insurance policy, but that is not the case in India where nearly 60% of vehicles are uninsured. Which is why most innocent accident victims end up paying out of their own pocket for treatment or repair-related costs. That is why third-party car insurance is mandatory.

What is covered under the policy?

The third-party car insurance policy covers the policyholder against injury, disablement or accidental death of a third-party person, including treatment costs and legal fees, if any. It also covers against damage done to a third-party person’s property as a result of an accident involving the insured vehicle. This policy does not provide coverage against damage done to your own vehicle or to your own self.

How does it work?

It starts when the victim of the accident files a FIR with the police against the policyholder at fault. You will receive a charge sheet next. This is helpful in then registering a case with the Motor Accident Claims Tribunal, which is the special court responsible for accident-related cases. Ensure you register the case in the correct jurisdiction – the place of residence of the petitioner or the area where the accident took place. The court hears the cases of both parties and based on the evidence, decides on the liabilities. This amount can then be claimed by the victim from the perpetrator’s third-party car insurance. However, this is the maximum amount that the insurer is liable to pay – which may not cover the entire cost of repairing the damage. You cannot further claim your insurer and will need to pay out of your own pocket to cover the damage.

This is a cumbersome process that is only recommended in case of death or severe bodily harm. In case of vehicle-damage only, it’s recommended to go for out-of-court settlements as it’s quicker and easier.

What is not covered?

As the name suggests, the third-party car insurance policy only covers damage to a third-party person or their property. It does not cover damage to your own vehicle.

Further, you cannot claim compensation more than once for the accident. If the compensation awarded by the court is lower than the cost of repairs, the victim cannot file a claim with their own insurer. The insurer’s liability is capped at INR 7.5 lakhs. Any compensation above this figure need to be borne by the vehicle owner.

Conclusion

The process of filing a third-party claim is not only time-consuming and hassling, but there’s no guarantee of receiving complete compensation. It’s worth doing so only in severe circumstances, while vehicular damage can be settled out of court. Also, the best way to safeguard your finances is to have a comprehensive insurance policy and not just a third-party car insurance policy, so that your own vehicle’s damage can be taken care of immediately.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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