When do you need third party insurance coverage?

Last Updated: Tue, May 13, 2014 06:25 hrs

The Motor Vehicles Act 1988 mandates a third party insurance cover on any vehicle owned by an individual. A third party insurance cover is one which covers you against any legal liability arising out of loss inflicted on any third party. Before we understand what a third party means let us also have a clear understanding on what a first party and second party stand for. The insured is the first party, the insurer being the second party and the person who is injured by the insured and who claims loss (es) is the third party.

myinsuranceclub.comLoss refers to any bodily harm or injury to any third party or damages caused to the party's vehicle. In case you are confused by the concept of third party, a third party is anyone other than the vehicle owner , be it a co-passenger, a common pedestrian or the damaged vehicle's owner or its driver and/or passenger(s), all fall under the purview of the third party concept. It is called a third party cover because the beneficiary (the person availing the benefits) is anyone other than the person insured.

In fact, the insurer pays the money directly to the claimant (the third party) without it passing through the hands of the insured (the first party). Now, getting back to our topic, when you need third party coverage is actually irrelevant. Since it is mandated by law, want it or not, you will have to buy this cover. However, the relevance of a third party cover can be outlined easily as it finds useful application in certain cases.

New v/s used cars- buying a new car is a dream come true and you will zealously guard your newly bought car even against a single scratch. Having said so, you wouldn't mind shelling out few extra pounds and would definitely opt for a comprehensive cover which would insure damages caused to your own car also.

The story is quite different in case of buying a used car. In that case, opting for a third party cover makes sense. In case of damage to your own car, getting it repaired at your local garage would be your preferred choice. As such, the repairing expense paid occasionally would be far cheaper than paying a regular higher premium for a comprehensive plan. Moreover, as your car gets older, the depreciation factor eats away into your claim amount. Insurers settle a much reduced portion of the amount claimed for an older car because of heavy depreciation considered for car parts. Thus, it is better to opt for a basic third party cover.

Rental cars- a person owning a car rental service generally takes only a third party cover for his cars. One of the main reasons being cost. Insuring all the vehicles under a comprehensive plan would cause a considerable financial strain. Moreover, the drivers need to be properly registered before claiming liability for personal loss from the insurer. All this involve a lot of hassle and so a third party cover is generally sought for a rental car.

In spite of being mandatory, a third party cover also promises great rewards. It has unique advantages in the sense that the premium charged is independent of the car value. Furthermore, there is no cap on the compensation paid out to the aggrieved third party. At very low premiums, a third party cover, though mandatory, is also a very useful tool.

Written By:  Deepak Yohannan
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal

Deepak Yohannan


The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal

For more articles by Deepak Yohannan, please visit MyInsuranceClub.com

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