Third-party insurance, also referred to as liability insurance, essentially provides financial coverage to an insured person against any liability incurred in case of any loss/damage caused to third-party property or the person.

In India, there are two types of car insurance available i.e. comprehensive insurance and third party insurance. Third-party car insurance shields the car owner against any losses that might incur due to any bodily injury, the demise of a third-party or damage to the property of that person. In India, it is mandatory to have third-party car insurance. Anyone can easily buy third-party car insurance online right from the comfort of his/her home or anywhere across the globe. Buying third-party car insurance online is easy, convenient and also saves time.

As per the rules of the Motor Vehicles Act 1988, the Insurance Regulatory and Development Authority (IRDA) of India computes the third party damages.

What is Third Party Insurance?

Third party insurance is a type of insurance policy that covers only third party liabilities of the vehicle owner. It provides financial protection against any damages or physical injuries to the third parties caused by an accident. Also known as the act-only insurance’, the beneficiary under this insurance is a third party and not the policyholder (first party) or the insurance company (second party).

Third party insurance provides damage protection coverage to the third party by the insured vehicle. It covers damages to the property, damages to the vehicle, physical injuries and death of the third party. However, third party insurance will not offer compensation if the accident was caused due to drunken driving.

What is Third Party Car insurance?

Third party car insurance is a type of motor insurance policy that financially protects the car owner against third party legal liabilities resulting from an accident involving the car. It provides coverage against any property damages, physical injuries or death of third parties if the car owner is at fault. For example, bumping the insured car with another car on the road.

Third party insurance provides coverage against any accidental injuries or damages caused to the third-party by the insured four wheeler. It covers third party liabilities arising out of:

  • Property damages

  • Damages to the vehicle

  • Bodily injuries, and

  • Death of the 3rd party

However, third-party insurance does not pay compensation on behalf of the policyholder if he/she was drunk driving the insured vehicle.

Third party car insurance is a risk cover, under which the insurer compensates for any legal liabilities of the car owner claimed by the third party involved in an accident, where the insured vehicle is at fault. As per the Motor Vehicles Act 1988, Section 146, plying an uninsured vehicle on Indian roads is an offence. This is why liability insurance is also known as the ‘Act Only’ plan. However, the scope of cover doesn’t include damage or loss of the insured vehicle.

Why Do You Need Third Party Insurance?

Besides the legal clause, third party insurance comes in handy when the insured vehicle hits another vehicle. Nobody can measure the level of damage caused by an accident – it may lead to death as well. In such instances, the victim is allowed to register a case claiming compensation. Here third party insurance comes into the picture. It covers the insured vehicle in case any liability claim arises for causing bodily injury, property damage, or death of the third party.

As per the guidelines of IRDA, while there is no limit in case of death, the property damage cover is limited up to Rs 7.5 lakh in case of car insurance. It is better to stick to third party liability insurance if the insured vehicle is more than 5 years old.

How Does Third Party Insurance Work?

As stated earlier, third party insurance is liability insurance that works towards easing out the legal liabilities of the first party for causing damages or injuries to the third party. The first party refers to the vehicle owner who is responsible for the injuries/ damages caused to the third party. The third party is the person filing liability claims against the first party. The second party or the insurance company aids the financial burden of the vehicle owner by paying the legal liabilities towards the third party.

Insurance companies cover two kinds of motor third party insurance claims – bodily injury liability and property damage liability.

Third party bodily injury liability claim arises out of the insured causing physical injuries to another person with his/ her vehicle. Such claims provide coverage for hospitalization expenses, pain & suffering, loss of income as well as death or permanent disability as a result of the accident.

Third party property damage liability claim covers the property damage or complete loss of property caused by the insured vehicle. It includes claims related to damaged landscapes, such as a ruined fence, front lawn, etc., damaged property such as mailboxes, the fence gates, etc. as well as replacement of loss of structures, such as shops.

Key Benefits & Importance of Third-Party Insurance

Third party insurance comes with its own set of advantages. To know why third party cover is important for a vehicle, take a look at some of the benefits and advantages of buying a third party insurance policy:

  • Offers Legal Cover and Financial Assistance:
    Legal liabilities can be financially draining and can lead to bankruptcy if the vehicle owner is unable to pay for the losses or damages caused to a third party person. This is where third party insurance comes into the picture as it provides the policyholder with the required financial assistance and helps him/her to pay off the third party liabilities without exhausting all the savings.

  • Covers Third Party Legal Liabilities
    As the name suggests, third party insurance covers all third party legal liabilities of the policyholder if he/ she causes accidental damages or injuries to a third party person. Not only does it pay for the damages caused to someone else’s car or property, but also provides compensation to the third party person in case of injury or death. Although neither the insurance company nor the insured is the direct beneficiary of third party insurance but a third party, this is the most crucial benefit that can be ensured for the owner or the driver of the insured vehicle.

  • Fulfils Legal Mandate
    As per the Motor Vehicles Act of India, 1988, it is legally mandatory for all vehicle owners in India to own a third party insurance cover to be able to use their vehicles on public roads. Thus, if someone buys third party insurance for his/her vehicle, he/she abides by the laws of the country and avoids earning a challan or fine for its violation.

  • Easy, Seamless and Fast Process to Acquire Third Party Insurance:
    Buying third party insurance is extremely easy and a quick process. Anyone can easily buy this insurance cover for his/her vehicle anytime online, including at home. Besides, the price for third party insurance is fixed by the Insurance Regulatory & Development Authority (IRDA) of India and thus, there is no scope for discrepancies. The policyholder can also renew this policy online by visiting the insurer website or insurance broker website and by following the given instructions.

  • Cost-Effective Policy
    The coverage offered under third party liability insurance appears exceptionally cost-effective and rewarding in terms of its cost and premium rate. Even if it has to be used as either an essential or an add-on part of the main policy, it benefits the vehicle owner fully. However, at the time of calculating the compensation amount, the vehicle owner’s annual income is considered.

  • Ensures Peace of Mind
    Third party liability insurance helps a vehicle owner to drive in peace and without any worries. This is possible because he/she doesn’t have to worry about arranging the finances in case of an accident as the policy ensures monetary protection from any unforeseen third party liabilities. Thus, third party insurance provides the policyholder with peace of mind and allows him/her to enjoy driving the insured vehicle.

Features of Third-Party Car Insurance:

The following salient features are a part and parcel of a third party insurance plan:

  • The policyholder and the injured third party are the beneficiaries of the third party liability insurance. These beneficiaries are only the nominal beneficiary of the third party car insurance. In practice, the money is directly paid to the third party or his solicitor by the insurance company.

  • Injuries to the car owner are not covered under third party car insurance unless the personal accident cover for the owner-driver has been opted. It covers the injuries caused by the insured car to the rest of the world.

  • In these plans, third party car insurance premiums do not consider the insured vehicle’s value as it is a ‘legal liability’ and it is impossible to know beforehand what that liability would be.

  • Third party car insurance involves lawyers’ help.

  • With an option to renew or buy third party car insurance online, the process has become easy, quick, and seamless. It entirely depends on the time and convenience of the car owner.

What is Covered Under Third-Party Insurance?

Third party car insurance covers the liabilities arising due to a third-party accidental damage, injury or death. The policy compensates for the Third-party liabilities which can be up to Rs 7.5 lakh in case of property damage. There is no exact limit for death claims as it is based on the verdict by the Motor Tribunal Court.

  • Third Party Liabilities
    Third party liabilities result out of any damages or injuries caused by the insured car to a third party during an accident. Since the accident is caused by the insured car, paying for the damages is the responsibility of the insured car’s owner. Third party liability insurance covers legal liabilities arising out of causing:

    • Property Damages – It covers the car owner against any accidental damages caused to the property of a third party person by the insured car. In case someone, unfortunately, rams his/her car in a third party person’s property, such as the boundary wall or a shop, the third party insurance policy will pay for the loss or damages caused to that person. The motor insurer will cover your damage liability up to the limit of Rs 7.5 lakh.

    • Car Damages – If a car owner accidentally hit a third party person’s car with his/her own car while driving, the insurance policy will come to the rescue and pay for the damages caused to that person’s car on the policyholder’s behalf.

    • Accidental Bodily Injuries – In case the car owner accidentally hits a third party person with his/her car, the motor insurer will pay for the treatment of that person’s bodily injuries. In case the victim suffers from a disability as a result of the accident, the compensation amount that needs to be paid will be decided by the Motor Accidents Claims Tribunal. But only 50% of the compensation amount is paid by the insurer in case the victim suffers from lost limb or partial blindness.

    • Accidental Death – If the car owner accidentally runs over his/her car on someone or causes fatal injuries to a third party person leading to his/ her untimely death, the motor insurance provider will pay compensation to the victim’s family on the policyholder’s behalf. The compensation amount that needs to be paid to the victim will be fixed by the Motor Tribunal court. In the case of third party death, 100% of the compensation amount will be paid by the motor insurance company.

  • Personal Accident Cover
    A few motor insurance companies also offer personal accident cover to the owner-driver of the insured car under third party car insurance. As part of this cover, the owner-driver of the car is granted compensation in case he/ she ends up suffering from a disability or dies as a result of the car accident. In case of death of the policyholder, the compensation is paid to the nominee appointed by the car owner. The compulsory personal accident cover for the owner-driver is available for up to Rs15 lakh.

What is Not Covered Under a Third Party Insurance?

Like in the basic motor insurance plan, the standard third party insurance is not applicable to certain situations. The following coverage is not provided under a third party car insurance policy:

  • Own Damages – It does not cover any damages sustained by the insured car, be it accidental damages, fire damages, damages due to natural & manmade calamities or due to theft.

  • Drunk Driving – It does not cover any third party liabilities if the car was being driven under the influence of alcohol or drugs.

  • Invalid License – It does not cover any third party injuries or damages if the driver of the insured car has an invalid driving license.

  • Outside Geographical Limit – If the insured car causes third party damages or injuries outside the geographical limit of the country, it will not be covered.

  • Unauthorized Usage – It does not cover any third party injuries or damages caused while using the insured car for illegal activities, racing, commercial purposes, etc.

  • Contractual Liability – It does not cover any claims arising out of contractual liability.

  • Undesignated Driver – If any individual, other than the owner of the car or the designated driver was driving the vehicle, the resultant damages or injuries to the third party are not covered.

  • Substantial Loss – It does not cover any accidental loss or damage sustained by the third party, which has accrued from any substantial loss.

  • Nuclear Perils – It does not include any liability caused by a nuclear weapon or radioactive contamination directly or indirectly.

  • War – It does not cover any damage, loss and/or liability caused to the third party due to invasion, war or any other war-like operations.

The details in the list above are the most common exceptions; make sure to check the documents of the policy for a comprehensive list of exclusions.

Coverage of Third Party Liability Insurance for Commercial Vehicle

Third party liability insurance for commercial vehicle covers:

  • The policy covers the legal liability of the vehicle owner for any injury or damage caused by the insured vehicle to the third party

  • Demise or any bodily injury to the third party

  • Property damage caused to the third party for up to Rs 7.5 lakh

  • Disadvantages of Third Party Insurance
    Third party insurance does come with certain disadvantages. Take a look at them below:

  • No Coverage for Damages to Own Car
    During a car accident, the policyholder does not have to worry about the legal liabilities arising out of causing bodily injuries or property damages to a third party person. But what about the damages to the insured car? Accidents may cause major damages to the insured car as well which won’t be covered under the third party liability insurance policy. As a result, the car owner will have to pay for the incurred losses or damages to the insured car in case of third party insurance.

  • No Protection From Theft/Fire
    Besides accidents, a car is constantly at the risk of getting stolen or catching fire. In case the insured car catches fire or gets stolen, the third party insurance policy will be of no use as it will not pay for the loss of the insured car.

  • No Add-On Covers
    A third party insurance policy does not come with a wide range of add-on covers unlike in the case of a comprehensive insurance policy. Add-on covers help to expand the coverage for the car and can also help to save money in the long run. Zero depreciation cover, conveyance benefit, roadside assistance cover, no claim bonus protection, return to invoice, etc are some of the add-on covers available under comprehensive insurance. Unfortunately, these covers cannot be availed under a third party insurance cover.

How to Claim Third Party Insurance?

  • Step 1- Application
    The victim or the legal heir of the departed can make an application against the owner of the vehicle for third-party liability compensation.

  • Step 2- Lodge an FIR
    Once the application is completed, file an FIR with the police, furnishing the required details. He/she must have a copy of the FIR and the original records of the expenses incurred by the victim.

  • Step 3- Approach the Motor Accidents Claims Tribunal
    After filling the First Information Report (FIR) successfully, the next step is to register the case with the Motor Accidents Claims Tribunal.

  • Step 4- Get the Cover Amount
    There is no pre-decided limit for claiming third party insurance. The insurer compensates the full amount decided by the court in its final verdict. However, IRDA limits the coverage for property damage to up to Rs 7.5 lakh.
    NOTE: The police complaint must have the following information:

    • Driver’s Licence Number

    • Witnesses’ name and contact details (if any)

Comprehensive V/s Third Party Liability Car Insurance

Third-party car insurance is different from comprehensive car insurance on the basis of its coverage. Third party car insurance financially protects the car owner from any third party claims arising out of death or bodily injuries or damages to that person’s property in an accident. Besides, this insurance is legally mandatory to ply a car on public roads.

Comprehensive car insurance, on the other hand, is quite extensive in nature. It safeguards the insured vehicle from natural and man-made calamities. Any damage to the insured car due to vandalism, earthquake, flood, storm, strike, riot, terrorist attack, or theft etc. will be taken care of by this plan. While third party insurance only covers third party liabilities, comprehensive insurance covers the insured against both own damages as well as third party liabilities. That’s the reason why most experts recommend a comprehensive insurance plan to ensure optimum protection of the car.

Third-Party Insurance FAQs

  • What are the types of car insurance I can avail in India?

    The primary category of car insurance includes two types- third party car insurance, comprehensive car insurance or own-damage car insurance. Third party car insurance is mandatory in India, while the others are optional. Apart from these, there are personal accident insurance cover and other add-on covers, such as zero depreciation cover, roadside assistance cover, NCB protector and so on.

  • What is third-party insurance?

    In simple words, when an accident results in death/injury/damage to a third party by your vehicle, then the affected party has the right to raise a claim for damages. This claim will be satisfied by your third-party liability policy. In exchange for this, you will not receive any monetary benefits.

  • As a part of this policy, what is the highest compensation offered?

    In the case of death or bodily injuries, there is no particular ceiling with reference to the amount of compensation. However, in the case of damage to the property of the third party, the insurance company will compensate for a maximum amount of Rs. 7.5 lakh.

  • Can I skip buying third-party car insurance? I drive my vehicle really well.

    No. Third-party car insurance is obligatory for all motor vehicles. Third party risk insurance is compulsory under the statute of the Indian Motor Vehicles Act, 1988. You may be a good driver, but it does not negate the fact that the vehicle you drive can become the victim of a disaster that causes damage to another vehicle. In such a situation, you will be grateful that you have a third-party car insurance cover that can help you pay the third party liability claim.

  • What documents do I need to submit while raising a third-party motor insurance claim?

    The documents you need to submit include:

    • Copies of FIR (First Information Report) as registered by the police
    • Any proof related to the costs that are to be claimed
    • A report from the Surveyor
  • How much time do I get to raise a claim on the third-party liability car insurance policy after an accident?

    As it is said that the early bird catches the worm, you must begin the process by reporting a case with the Motor Accidents Case Tribunal within a time span of 60 days from the occurrence of the accident.

  • Who can purchase 3rd party insurance?

    The owner of any vehicle, who has registered it with the RTA i.e. Regional Transport Authority in India, can buy third-party insurance.

  • What is the duration of the policy?

    The validity of a third-party insurance plan is usually one year and has to be renewed before the due date. Please note that you will be provided with a fixed grace period for making payment of the premium.

  • If I want to sell my car, can I transfer the third party liability auto insurance to the new owner?

    If you sell your vehicle to another individual, you can transfer the insurance to the name of the new buyer. The new buyer (transferee) has to submit an application for the transfer of insurance with the insurer within a period of 14 days from the date of transfer of the vehicle in his/her name and after the endorsement premium is paid for the remaining duration of the policy.

  • Is the service tax applied and what is the amount?

    Yes. You are required to pay service tax while buying third party car insurance. The GST amount payable is 18% as per the current guidelines.

  • Can I get zero depreciation cover under my third party car insurance policy?

    No. You cannot buy zero depreciation cover for your car if you have a third party car insurance policy. This is because zero depreciation is an add-on cover, which is only available under its own damage cover. To avail the zero depreciation add-on cover, you will need to buy a comprehensive car insurance policy.

  • Can I switch from comprehensive car insurance to third party insurance?

    Yes. You can convert your comprehensive car insurance policy into third party insurance at the time of policy renewal. You can compare different third party insurance plans and buy the most suitable plan for your car.

  • Is third party car insurance affordable?

    Yes. Third party car insurance is affordable as compared to comprehensive insurance as it provides only the mandatory third party liability cover. Comprehensive insurance also provides its own damage cover, which increases its premium in comparison to third party insurance.

  • What if I am caught driving my car without valid third party car insurance?

    If traffic police catch you driving a car without a valid third party car insurance cover, you will be fined Rs 2000 or/ and sent to jail for up to three months. If you are caught for the second time, the fine will increase to Rs 4000 or/ along with a jail term of up to three months.

  • If I make a third party claim, will I lose my No Claim Bonus?

    No. If you make a third party car insurance claim, there won’t be any impact on your no claim bonus.

  • What would happen if someone else was driving my car at the time of the accident?

    If someone else is driving your car at the time of the accident and has caused damages or injuries to the third party, your car insurance company will cover the liabilities. But if the driver was drunk or driving without a valid license, then your claim will be rejected.