According to the Motor Vehicles Act 1988, it is mandatory to have a Third-Party Motor Insurance for your vehicle in India. While Third Party Insurance is mandatory, a Comprehensive Insurance policy is not. Moreover, a Comprehensive policy — which comprises of two major components, Third Party cover and Own Damage cover – is always higher priced than a Third Party insurance cover.

This explains why a majority of people in India rely only on Third Party Insurance and do not go for a Comprehensive cover. However, why is a Comprehensive Insurance policy essential? That’s because there are certain important things which a Third Party Motor Insurance policy does not cover. Let’s understand Third Party Insurance a bit more.

Third Party Motor Insurance

In a Third Party Motor Insurance policy, there are 3 parties involved:

1. The first party is the insured person

2. The second party is the insurance company, and

3. The third party is the person who claims damages on being injured by the insured person.

Under a Third Party Motor Insurance Policy, the insurance company enters into an agreement with the insured person to indemnify him/her on being held legally liable or sued in the court of law for the damage or bodily injuries or death of a third party or third party property while using his/her vehicle. In simpler terms, “it helps in meeting the financial expenses towards the medical treatment of the third party or meeting the third party vehicle repair costs in the event of an accident. It helps you in avoiding a financial loss in such stressful situations,” says Devendra Rane, Founder & CTO, Coverfox.com.

Thus, Motor Third-Party Insurance is referred to as ‘third party’ cover since the party benefiting from it is neither the policyholder nor the insurance company, “but a pretentious third party which might have received death/disability or property loss because of the insured. Hence, such a cover helps in covering up the legal liability of the insured towards this third party,” informs Animesh Das, Head – Product Strategy, ACKO General Insurance Company.

Also, the coverage offered by a Third Party Insurance Policy is cost-effective as the premium rate is lower. IRDAI defines the price of the product every year. Given higher accidents and losses, the price has seen a hike of 5-10% every year. It is expected the price may be revised in March 2018 again.

Here we are taking a look at what a Third Party Motor Insurance policy covers and what’s not covered by it.

What’s covered under Third Party Motor Insurance

1) Death of third party: A Third Party Insurance Policy covers the death of any third party due to an accident with your vehicle. “The compensation has no limit, and the case is reported to MACT (Motor Accident Claims Tribunal). Do note that while lodging an FIR, it is essential that the FIR includes the driver’s licence number and witnesses’ name and details (if any),” says Das.

2) Accident leading to disability: Accidents that lead to the disability of any third party are covered. The compensation is Rs 2,00,000 in case of total disability and Rs 1,00,000 for partial disability.

3) Property Damage: Property Damage of any third party is also covered. The compensation is Rs 7.5 lakh for cars and commercial vehicles, and Rs 1,00,000 for two wheelers

4) Owner-Driver cover: It covers owner who drives the car in case of an accident up to Rs 2,00,000 for car and commercial vehicle & Rs 1,00,000 for bikes. “This is a mandatory cover with any third party policy. The charges are Rs 50 for two-wheeler and Rs 100 for car and commercial vehicles. The owner-driver cover can only be taken by individual users and not by an organization,” says Das.

What’s not covered under Third Party Motor Insurance

1. Damage to your Own Vehicle: When you cause an accident with your motor vehicle like, say, your vehicle is involved in a collision with another person’s vehicle or it collides with another person’s property like a house. During such an accident whatever damage happens to your own insured vehicle, the cost of its repairs is excluded from the payment made by your insurance company under a Third Party Motor Insurance Policy.

2. Cover against injuries you suffer in an accident: This exclusion is in continuation with the above exclusion. Here the injuries that you as an owner and driver of the vehicle sustain during an accident against are completely excluded from payment by your insurance company. This includes everything, from major hospitalization or surgery to even minor day-care procedure.

“In short, any cost involved with treatment related to you from an accident while driving your insured vehicle with a Third Party Motor Insurance Policy is not payable. However, death and permanent disability is covered by a Personal Accident Cover for the owner driver which is a mandatory cover,” says Rane.

3. Cost of Personal Belongings in the Insured Vehicle during an Accident: Third Party Motor Insurance Policy also absolves your Insurance Company from the responsibility of paying for the cost of your personal belongings like laptop or mobile phone or jewellery or luggage or even cash and other valuable items which might be present in the insured vehicle which has met with an accident.

“If the vehicle meets with an accident and you leave it unattended or forget to lock it and your personal belongings get stolen from the vehicle, you cannot claim for such a loss and the insurance company will reject it outright. However, the same can be availed with a ‘Loss of Personal Belongings’ add-on cover with a Comprehensive motor insurance policy,” informs Rane.

4. Pay-out for a Replacement in case of Theft or Total Loss: Suppose your vehicle gets stolen, or your vehicle meets with a major accident or catches fire or gets crushed and is completely destroyed or mangled beyond the repair – Insurance companies call it a ‘Total Loss’ case. Under such circumstances, a Third Party Motor Insurance policy does not offer any pay-out or benefit for replacing your damaged vehicle.

This is a huge point of difference between a third-party policy and a comprehensive cover. A comprehensive policy will pay you back the sum amounting to the IDV you had chosen while buying a policy, whereas a third-party policy will pay you nothing. This amount for any car will go in lakhs, and can be a big financial loss.

5. Other General Exclusions: Other general exclusions under which a Third Party Motor Insurance Policy does not pay any benefit are:

a. Driving the vehicle under the influence of intoxicating substances like alcohol, drugs, etc.

b. Driving the vehicle without a valid driving licence.

c. Deliberately creating an accidental loss, or a deliberate event or intentional act created for causing an accident.

d. Contractual liability claims and driving the vehicle outside the prescribed geographical area.

e. Any damage to the motor vehicle due to an act of war, actual war, damage from nuclear material/ weapons, invasion, foreign enemy action, terror attacks, civil war, mutiny, rebellion, hostilities, radiation or are not covered.

“You need to remember that these exclusions are by and large common for any insurance policy whether you buy a third-party or comprehensive policy. These exclusions are kept in place to ensure a fair usage of the policy between customer and the insurance company,” says Rane.

Experts say that an insurance policy document is an important document. Here, even a simple asterisk can be the difference between claim acceptance and rejection. Don’t, therefore, ignore the statement that you would have heard countless times on commercials – read the policy document carefully.