Home Automobile What is Third-Party Insurance, and why do you need it?

What is Third-Party Insurance, and why do you need it?

car insurance policy

Last Updated on March 6, 2024 by Tayyaba Shafqat

It is crucial that before you purchase any car insurance policy, you take time to understand the terms and conditions under the plan thoroughly. You can buy two broad car insurance policies in India- comprehensive and third-party car insurance. All car owners must purchase at least third-party insurance. You can now buy third-party car insurance online, or if you have one that is expired, you can start the process of renewing car insurance. 

You might be unaware of the difference between a comprehensive and third party car insurance plan. In this post, you will understand what third-party insurance is and why having this type of car insurance is essential. But first, there are some insurance terminologies you need to acquaint yourself with.

Understanding the parties involved in a typical car insurance policy

There are three main parties to every car insurance policy. Each party to a car insurance policy plays a vital role in comprehensive and third-party car insurance. Below is a brief explanation of who and what these three parties are:

  • First Party: The policyholder is the first party in a car insurance policy. They are the one who purchases the policy and pays the premium. The first party is the car owner whose vehicle is insured under their preferred car insurance coverage. 
  • Second Party: The insurance company is the second party in every car insurance policy. The insurer pays the first party the benefits under the car insurance coverage. However, the first party must file a claim verified and authenticated by the insurer before the benefits can be claimed. In addition, the first party must pay the premium regularly for the second party to honour the claim when required.
  • Third Party: The third party in a car insurance policy are the individuals adversely affected by the insured vehicle owned by the first party in case of an accident. It could be a personal injury, damage or loss of property, or even death caused by the policyholder’s vehicle. The second party will be obliged on behalf of the first party to pay the third party the benefits under the insurance coverage. 

Now that you know the parties involved in every car insurance policy, you might wonder what the difference is between comprehensive and third-party car insurance.

What is a comprehensive car insurance policy?

It is a car insurance policy that protects the first party from a wide range of incidents that can lead to damage or permanent loss of the insured vehicle. These incidents include both natural and man-made disasters, including theft. A comprehensive car insurance policy also covers claims by third parties negatively affected by the first party’s insured car. The second party will pay the third party the benefits due to the first party under their car insurance policy, provided the claims have been verified and the first party is up to date with their premium payments.

What is third-party car insurance? 

The first party purchases third-party car insurance and the insurance plan protects the first party from third-party liability only. The first party is covered in the event of their insured car causing damage to the well-being, health or property of a third party. The insurer pays the third party compensation on behalf of the first party or the insurance policyholder. 

Why do you need third-party car insurance?

You need third-party car insurance for the following salient reasons:

  • Meeting mandatory legal requirements: The Motor Vehicle Act of 1988 mandates that all vehicle owners have a minimum of third-party car insurance to ply their vehicles legally on the roads.
  • Easy purchase: It is easy to purchase third-party car insurance, as the requirements are not as stringent as a comprehensive car insurance policy. You can easily buy third-party car insurance online without much complicated requirements.
  • Lesser premium pricing: The premium pricing under third-party car insurance is lesser than that of a comprehensive car insurance plan. The reason for this is simple; the former has a limited coverage compared to the latter, therefore commanding a smaller premium payment requirement.  
  • Avoiding traffic fines: You will face traffic penalties and fines if you do not have valid car insurance coverage. Third-party car insurance is the barest minimum needed to avoid the wrath of traffic police.

In conclusion 

Many motorists in India buy third-party car insurance and do car insurance renewal because it attracts a lesser premium payment and meets the minimum mandatory legal requirement. However, you should know that comprehensive car insurance is also as crucial as a third-party car insurance policy as it covers your personal vehicle. 

For example, if you have a brand new car, then buying a comprehensive car insurance policy will offer you extensive coverage that also covers third-party liability. Whichever insurance you choose, your number one priority should be renewing car insurance policies immediately after expiration to avoid traffic fines and additional out-of-pocket expenses.