What is Third Party Liability in Motor Insurance?

Third-party insurance is compulsory for all vehicle-owners as per the Motor Vehicles Act. It covers only your legal liability for the damage you may cause to a third party – bodily injury, death, and damage to third party property – while using your vehicle. TP cover does not pay for repair of damage to your vehicle. It is, therefore, important to understand its scope in detail.

 

Who are First and Second Parties?

A third-party insurance policy is a policy under which the insurance company agrees to indemnify the insured person if he is sued or held legally liable for injuries or damage done to a third party. The insurance company and the insured are first and second parties, and anyone else who suffered death, injury, or the person who claims damages against you is the third party.

 

Who is Third Party?

Motor Vehicle Act, 1988, under section 145(g), "third party" includes the Government. "Third party" includes everyone (other than the contracting parties to the insurance policy), be it a person traveling in another vehicle, one walking on the road, or a passenger in the vehicle itself, which is the subject matter of the insurance policy.

 

What are the Key features of Third-Party Car Insurance?

The primary goal of Third-Party Insurance is to provide coverage for damage or loss that occurs to third parties. The key features of Third-Party Insurance are listed below.

• According to the Motor Vehicles Act of 1988, Third-Party Insurance is mandatory and a legal requirement for driving on Indian roads.

• New cars, while registration, should purchase Third-Party Insurance for a period of three years. However, for old cars, it can be purchased for every year.

• The rate for Third-Party Car Insurance is fixed by the (Insurance Regulatory and Development Authority of India) IRDAI, which all insurance providers follow.

• The premium for Third-Party Car Insurance is fixed based on factors like cubic capacity and the purpose of the vehicle used (private or commercial use).
   

What does Third-Party Car Insurance cover?

Third-Party Car Insurance provides coverage for third-party loss or damage. If the insured vehicle damages the third-party property or vehicle or loss occurs, it provides financial compensation to the third parties who suffer damage caused by your car. However, Third-Party Insurance does not provide coverage for collision or accidental damages.
 

What does Third-Party Insurance not cover?

Third-Party Car Insurance only covers damages or loss caused to third-party property, individual or vehicle. The exclusions are listed below.

• Accidental damages caused to the own vehicle.

• Injuries or death of the car owner. 

• Theft of the car, accessories or components.

• Loss that occurs while driving without a valid driving license.

Third-Party Insurance only meets the legal requirement and does not provide coverage for accidental and collision damage. Comprehensive Car Insurance provides coverage for accidental and collision damage. Additionally, you can also choose from a wide range of add-ons that provide complete coverage.
 

What are the benefits of having Third Party Liability Insurance?

Third-party car Insurance is affordable and meets all the legal requirements. Legally, you can escape fines and penalties. Additionally, it is pocket-friendly when compared to Comprehensive Insurance; however, the coverage is limited.

 

How Does Third-Party Liability Car Insurance Work?

The policyholder or the insured person is the first party, and the insurance company or the provider is the second party. For example, if you are driving and by mistake, your insured car hits someone else’s car in the road, causing them financial loss, Third-Party Insurance compensates them with the appropriate financial assistance. The person you hit is the third party.

 

The policy also compensates in case of property damage or loss compensates on your behalf. As a result, it protects you from unforeseen events and provides financial assistance.
 

What is 'Act Only' Cover? 

Act only or Third-party policy covers only your legal liability for the damage caused to a third party like bodily injury, death, and damage to third party property – while using your vehicle. Third-party insurance does not cover damages to your vehicle.

 

How 'Act Only' Policy Includes "PA" Risk?

Third-party or Act Only policy also includes Personal accident risk of an owner-cum driver in the event of permanent disablement or death in an accident. An inbuilt coverage of Rs. 1 lakh in two-wheelers and Rs. 2 lakhs in all other vehicles for the owner-cum-driver while traveling, mounting, or dismounting from the vehicle is available. Accidental cover for co-passengers is optional.

 

Who are the Beneficiaries?

Motor third-party insurance or the 'act only' cover is a statutory requirement under the Motor Vehicles Act. It is referred to as a 'third-party' cover since the beneficiary of the policy is someone other than the two parties involved in the contract, i.e., the insured and the insurance company. The policy covers the insured's legal liability for death/disability of third party loss or damage to third party property. The victim can claim for compensation under 'no fault liability' or 'fault liability' 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 a maximum of Rs. 7.5 lakh.

 

Who Decides Third Party Premium?

In third-party policies, the premiums do not vary with the value of what is being insured because what is insured is the 'legal liability,' and it is not possible to know in advance what liability will be in case of an accident. The compensation to the accident victim is decided by the WC Court or MACT. IRDAI has done away with tariffs. Now the premium on the third party liability cover only is fixed by IRDAI.

 

Mandatory by law, Third-party cover protects you against the legal liability of accidents. It also covers damage caused to any surrounding property. The compulsory nature of car third-party insurance is justifiable as it makes the process easier for the injured person to recover money from the insured/Insurer. Motor Vehicle Act, 1988 mandates Third-Party insurance for every vehicle used at a public place.
 

Conclusion 

Third-Party Car Insurance is mandatory according to the Motor Vehicles Act of 1988. It is a legal requirement, and you can avoid paying any hefty fines and penalties. If you cause damage or loss occurs to a third-party, the insurance ensures that the compensates on your behalf.
 

Shriram Car Insurance provides Third-Party Insurance at an affordable premium. It also provides Own-Damage Insurance, Comprehensive Insurance, and a wide range of add-ons. Comprehensive Car Insurance provides coverage for third-party damage and accidental and collision damages. So, it is recommended to purchase Comprehensive Car Insurance for complete protection.
 

FAQs

1. Is Third-Party Insurance mandatory in India?

Yes, Third-Party Insurance is mandatory according to the Motor Vehicles Act of 1988.

 

2. How is Third-Party Insurance different from Comprehensive Car Insurance?

Third-party car Insurance only covers third-party loss or damage, whereas Comprehensive Car Insurance provides coverage for Third-Party Insurance and own Damage Insurance, and you can choose the required add-ons for complete protection.

 

3. Can I drive only with Third-Party Insurance?

Yes, you can drive with only Third-Party Insurance as it is legally sufficient. However, Comprehensive insurance provides complete protection.