Around the world, insurance services help protect the interests of individuals and businesses. Different types of insurance services exist; one of the major types under motor insurance is third party insurance. It is a legal prerequisite for vehicle owners and offers significant financial protection to the owner of the vehicle. This form of insurance is vital and needs immediate focus considering the pace at which the automotive industry in India is evolving, along with the growing number of vehicles on the road and the increasing number of accidents. In this blog, we analyze the definition and significance of third-party insurance in India, its legal framework, what the insured elements are, what the uninsured elements are, its comparison with comprehensive policies, and other relevant aspects. Knowing these factors is important not only for legal compliance, but also for responsible vehicle ownership.
What is Third Party Insurance?
Third party risk is a type of liability insurance policy where the insured is protected from any claims made due to injuries inflicted on a third party or damages to their property. In other words, third party insurance is used when someone meets with an accident and incurs some damage which needs legal and financial damages. This policy enables victims of accidents to recover from their losses, aiding them when needed. India primarily associates third party insurance with automobiles as a social requirement addressed by the Motor Vehicles Act of 1988. Any vehicle owner must possess at least third party liability insurance enabling them to drive on public roads. The absence of this policy equates to unreasonable disregard for legal penalties and infuriating moral consequences towards undeserving victims of the insured’s inaction.
The Legal Framework Relating to Third Party Insurance
The most relevant statute for third-party insurance in India is:
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The Motor Vehicles Act of 1988:
It mandates that all vehicles operating on Indian roads must have a third-party insurance cover. Non-compliance can lead to severe fines or imprisonment. It also outlines the owner’s responsibilities concerning the vehicle, including giving them compensation and legal recourse to the third parties who have suffered as a result of their negligence.
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The Insurance Regulatory and Development Authority of India:
This body supervises the entire insurance industry in the country with respect to rate control, claim settlement, and the protection of policyholders in relation to the insurance industries. It sets policies in place to guarantee that the clients of insurance companies are not taken advantage of. However, the most important focus of IRDAI is the solvency of insurers to ensure that their obligations will be met when due.
These laws work together to promote safe driving as well as optimal utilization of the vehicle by the insured.
Third Party Insurance: Perks
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Legal Obligation:
The unique thing with third party insurance is that it serves a legal obligation. Not having it incurs a fine of INR 2,000 for a first time offense and INR 4,000 for a second. There may even be a jail term issued in some cases which is why this law cannot be ignored.
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Financial Benefit:
In the case of an accident, third party insurance defends the policyholder against out-of-pocket payments for the expenses of the other party’s damage or injury. Without this protection, the financial burden can be enormous, especially in cases with severe injury or damage to property.
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Soothing Stress:
Having some form of coverage over a possible accident and its consequences brings a great boost on the confidence of the drivers. This form of mental assurance tends to uplift the assurance level while driving which therefore fosters safer driving behavior. Third party insurance eases the effect of the insured complexities concerning accidents that he has to sort out.
Third Party Insurance is best known on both sides of the road, why?
In India 3rd party insurance includes:
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Death and overall harm to a human outside the vehicle:
The insurance firm has to settle the out of court expenses for the insured vehicle damaging or causing death to a third party bodily damage while paying for all the damages suffered in a claim and paying all expenses incurred in attending the injury suffered. The damages compensatory include being taken to hospital, earnings forgone because of incapacity, and legal award through court payment due to unjust enrichment.
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Third-Party Property Damage:
Payment for damages of any third party property (i.e. vehicles, walls, shops, etc). As per the guidelines set by IRDAI, the limit of ‘compensation’ or ‘pay out’ for property damage is set to INR 7.5 lakh for private cars as it currently stands. This amount may be subject to change in the future due to inflation or future steady risk assessments.
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Legal Expenses:
Insurance policy which covers legal outgoes emanating from litigation concerning the third party claims. These expenses are payment made to the lawyer, payments made to the court and some other expenses of litigation involved in defending or suing a claim. Elucidating such claims are imperative in India where the legal processes tend to be cumbersome.
What is not covered under third party insurance?
There are a few limitations with third party insurance and do not cater:
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Undercarriage damage costs:
Self damage sustained to your own machine must be passed unto yourself unless comprehensive insurance is in place. This covers impact, theft, or natural disasters involving your machine.
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Driver personal accident cover:
Usually this is an additional buy-on and does not come with basic third party cover. It is something that needs to be explicitly requested, or subscribed to under a comprehensive plan.
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Drunk Driving or Illicit Activity:
Claims can be denied if the vehicle was being driven for illegal purposes or the operator was intoxicated. This motivates drivers to exercise caution on the roads.
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Driving Without a License:
The claim can be denied if the person operating the vehicle does not hold a driving license. Make sure to have a current and valid license before you take the wheel.
Knowing these exclusions helps prepare policy holders so they are not caught off guard during claims processing.
Classifications of Third Party Insurance Policies
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Third Party Stand Alone Insurance:
This policy only pays for third party damages. It is the simplest and legally required form of insurance. This type of coverage is the minimum insurance needed to legally drive a car on Indian roads and is efficient for vehicles not driven regularly.
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Bundled Policies:
Insurance companies provide these policies as a promotional strategy. For new cars, insurers tend to provide these bundled policies where third party coverage is offered alongside own damage cover for a stipulated period. There is convenience attached to these policies as they tend to be cheaper than buying two independent policies.
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Extended Third Party Insurance:
As mandated by IRDAI, a new vehicle has to be sold together with a minimum of three years (for cars) or five years (for two wheelers) of Third Party Insurance. This rule was introduced to tackle the increasing rate of uninsured vehicles within the Indian borders.
Choosing a policy type hinges on how one uses the vehicle, their financial abilities, and individual choice.
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How to Purchase Third Party Insurance in India
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Online Portals:
Policy documents are available for purchase on the websites of most insurance companies. Policy aggregators like PolicyBazaar and Coverfox also allow for policy comparisons before purchase. Purchasing a policy online is relatively faster, with no fuss, and constant documentation is not needed.
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Offline Through Agents Or Brokers:
This is the more traditional way which requires the customer to meet the agent face to face. It is suitable for anyone who does not have much knowledge about the internet or digital service and prefers face to face customized discussions.
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Through Vehicle Dealerships:
This is frequently offered as an add-on when purchasing a vehicle. While convenient, it’s prudent to shop around as their offers may not always be value for money. It’s advisable to compare from different dealers and then come to a decision.
All of these listed methods have their advantages and disadvantages; it is wise to select one that is best for your requirements.
Premium Calculation for Other Person Liability Insurance
Third-party insurance premiums differ from comprehensive insurance as they are set by the Insurance Regulatory Authority of India (IRDAI); the only determinant that changes is the vehicle’s engine capacity. Here is an example:
- Two-wheelers (up to 75cc): ~INR 538
- Two-wheelers (76cc to 150cc): ~INR 714
- Private cars (up to 1000cc): ~INR 2,094
- Private cars (1000cc to 1500cc): ~INR 3,416
The premium is also affected by the vehicle’s age, fuel type, and region the vehicle is located in. Furthermore, these premiums are adjusted yearly to account for inflation as well as changes to the risk and the trending amount of claims. For effective budgeting, it is crucial to be aware of these changes.
Country Specific Insurance Policy Guidelines Insurance Claim Procedures
- Contact the insurance company to notify them of the accident.
- Go to the nearest police station and file an FIR.
- Submit the following documentation: Fridge/Driving License, Vehicle Registration Certificate, etc.
- Issued by the Tribunal is usually MACT (Motor Accidents Claims Tribunal).
- Payment for third party insurance. The court claims the payment will be settled by the Insurer.
Pros of Third Party Insurance
- Affordability. Available to wide sections of the society due to low premium costs.
- Simple and Easy to Understand. Term insurance with no complicated fine prints.
- Businesses Required. Maintains the requirements under the Motor Vehicles Act.
Role of IRDAI in Third Party Insurance
The IRDAI is key in the ecosystem of third party insurance by,
- Fixing Premium Rates: Determines the rate of premium for different classes of vehicles within a year.
- Claim Settlement Assurance: Maintaining a set ratio of claims versus payments and their timing.
- Policy Enforcement: Provides forums for plan holders to express their grievances.
Challenges and Issues in Third Party Insurance
- Unjust Enrichment: Unjust claims increase cost for each insured person and put pressure on the scope.
- Reduced Scope: Third party non-insurance exists on countless units of vehicles.
- Public: The general public does not understand the relevance and advantages of tertiary insurance.
Current Changes and Directions
- Digital Policies: There is a surge in online users obtaining insurance as a result of ease and convenience.
- UBI (Usage-Based Insurance): Premiums are being tested for an experimental model that ties billing to driving behavior.
- AI in Claims Processing: Claim processing will become increasingly automated and faster through time reduction.
Conclusion
Third-party motor insurance is a fundamental component of the Indian vehicle insurance system. In spite of its seeming narrow application, the social insurance it provides, as a means to protect the financial fallout in accidents, ensures responsibility is necessitated. Every vehicle owner must have this insurance not simply as a legal requirement, but also because it provides critical social support to the victims of accidents.
Evaluate your tendencies, how often you use your vehicle, and your financial situation in the event of an accident before deciding which type of insurance to purchase, comprehensive or third-party. Whatever it may be, make sure the insurance policy is maintained and that it is not lapsed.
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FAQs
Q1. Is third-party insurance compulsory in India?
According to the Motor Vehicles Act, 1988, yes. It is necessary for all forms of vehicles to possess at least third-party liability insurance.
Q2. Is it possible to upgrade from third-party insurance to comprehensive coverage?
Comprehensive policy will be available to you during renewal or mid-term provided you pay the additional premium to be charged.
Q3. In a claim based on a third party, how is the compensation amount determined?
Compensation is assessed by the Motor Accidents Claims Tribunal (MACT) according to the type and degree of injury or damage caused.
Q4. What will happen if I drive without third party insurance?
The absence of valid third party insurance allows the enforcement authority to impose penalties which may reach INR 2,000 on the first occasion and INR 4,000 on subsequent occasions.
Q5. Is theft covered under third party insurance?
No. A third party insurance policy excludes theft and damage to the vehicle that is insured.
Q6. Is it possible to purchase third party insurance via the internet?
Yes, these services are available via most insurers and aggregator websites who sell third party insurance.
Q7. How long does a third party insurance policy remain valid?
In the case of newly purchased vehicles, third party cover is compulsory and must be of minimum duration (3 years for cars, 5 years for two-wheelers). In case of renewals, validity for third party insurance is usually one year.