What is Third-Party Insurance Cover and How it Works

What is Third Party Insurance?

Third-party insurance, which is also sometimes referred to as ‘act-only’ insurance is a statutory requirement for all vehicle owners as per the Motor Vehicle Act. It is a type of insurance cover where the insurer offers protection against damage to the third-party vehicle, personal property and physical injury. The policy does not provide any coverage to the insurer. 

How does Third-Party Insurance work?

If a policyholder meets with an accident, then the insurer offers financial assistance to pay for the cost of repairs to the third-party property. Thus, it reduces the financial burden for the policyholder. In the event of an accident, the insured must inform the insurance company about it immediately before filing for a claim. 

When the claim is filed, the insurer appoints a surveyor to assess the damages and verify the estimated cost of repairs. Once the verification is completed, the insurer settles the claim. 

Importance of Third Party Insurance

  • Third-party insurance is a mandatory requirement by law. So, having third-party cover allows the policyholder to comply with the legal obligation.

  • Although it is a basic coverage option, it gives the policyholders peace of mind knowing that they have sufficient financial protection against the damage they may cause to other people in an accident.

  • Third-party motor insurance secures the policy holder’s finance against accidental risks. 

The first step in understanding how a third-party insurance cover works are to make a note of the terminologies used. Some of the commonly used term associated with third-party cover includes:

First party: Policyholder or person who has purchased an insurance policy.

Second-party: Insurer or insurance company.

Third-party: Claimant or person who raises a claim for damages caused by the first party.

If the policyholder is involved in an accident with a third-party, then the policyholder is liable to pay for damages or injuries caused. When an accident takes place, the policyholder must inform the insurance company at the earliest and apprise them of the situation.

Also, it is essential that information is gathered regarding the accident and provided to the insurer with the following details:

  • Description of an accident along with date and time.

  • Details of insurance and policyholders present during the accident.

  • Describe injuries sustained by driver, passengers, and/or to property or vehicle damaged.

  • Details of witnesses.

  • Weather and visibility condition at the time of the accident.

  • Photographs of evidence collected from the accident site.

In case the police enquire, furnish details of the insurance company and make a note of the First Information Report (FIR) number, if applicable. Additionally, if the accident was not due to the policyholder, then the claimant can raise a claim for the cost of hiring a motor vehicle, repair costs, and injury compensation as per the conditions stated in the insurance policy document.

Features of Third Party Insurance

  • Third-party insurance offers a basic level of protection to all policyholders. 

  • It is also referred to as liability-only or act-only policy

  • It offers protection against the legal liability to a third party that may arise due to policyholder’s involvement in the accident. It compensates for the personal injury, loss of life, and property damage to the third-party

  • A significant feature of this type of policy is that it has an affordable premium

  • Third-party insurance does not offer protection to the insured car itself

The process to Claim Third Party Insurance

To get compensation from the insurance company, the policyholder must comply with the claim rules. The process to claim third-party insurance involves the following steps:

  • First and foremost, the insurance holder must inform the insurance company about the accident within the stipulated time, as mentioned in the policy document. 

  • The policyholder must file an FIR at the nearest police state from the spot of the accident, and get a copy of the same

  • File for a claim with the lender – fill the form, comply with the necessary documents requirement

  • Following the claim file, the insurer will send a surveyor to assess the damage and verify the estimated cost. Post assessment, the surveyor files a report

  • Based on the report, the insurer settles the claim

Inclusion / Exclusion of third party Insurance Plan

Inclusions

Third-party insurance offers protection against damages to the third-party by the insured vehicle. It covers physical injuries, damages to the vehicle, damage to the property, and death.

Exclusions

Third-party insurance does not provide any compensation, if:

  • The accident was caused due to drunken driving

  • The driver is underaged or was found guilty of driving without a valid driving license

  • The accident was a deliberate act

  • The vehicle was used for any commercial purposes or illegal activities

  • The vehicle gets stolen

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