An insurance policy offers monetary protection against contingencies. Insurance is of two broad types: life insurance and general insurance. In this article, we discuss third party insurance, a subset of general insurance.
The article covers:
What is third party insurance?
The name ‘third party’ stems from the fact that the beneficiary of the policy is someone other than the two parties of the contract: the insured (that is, you) and the insurer. Also known as ‘act-only’ or ‘liability-only’ insurance, a third party insurance policy offers monetary coverage against a third party’s losses or damages caused by you or your insured asset. However, you, being the insured/policyholder, will not receive any benefits or compensation on the occurrence of the event.
Inclusions and exclusions of a third party insurance policy
Inclusions of insurance mean the items/events covered by a policy and exclusions are those that are not covered. A typical third party insurance cover has the following inclusions and exclusions:
- Monetary protection against the damages caused to the third party by the insured
- Damages include death, disability or physical injuries caused to the third party. In addition, damages sustained by the third party’s vehicle or property is also included
- Damages due to an accident caused when driving under the influence of alcohol
- The driver is a minor or is guilty of driving without a valid motor driving license
- The accident was planned
- The vehicle was used for illegal activities or commercial purposes
- The vehicle was stolen when the accident occurred
Terminologies used in a third party insurance policy
Understanding the terminologies used in a third party insurance policy is key to know how the policy works. Note these:
- First party: is the insured or the policyholder
- Second party: is the insurance company or the insurer
- Third party: is the person who sustains damages and claims compensation for damages caused by the first party
Types of third party insurance
Talking about the insured property, it can be: a motor vehicle, a rented house or a business premise, depending on the type of the policy. These are called:
- Third party accident insurance
- Renters’ insurance policy
- Business liability insurance
How does a third party insurance policy work?
A third party insurance policy doesn’t compensate the insured but a person not part of the contract. Let’s take an example of motor vehicle insurance. Having third party insurance for both two and 4-wheelers is a prerequisite in India as per the Motor Vehicles Act. Without it, you can face legal consequences. So this is how the policy works.
In case of an accident caused by your insured vehicle, you’ll be liable to compensate the victim, who will raise a claim against your insurance policy. The insurer will then assess the damage caused and compensate the third party who has sustained injuries/damages. But the policy doesn’t cover the injuries you sustain or the damages caused to your property/vehicle. It only covers your financial liability arising due to the death, disability, loss or damage caused to a third party property/vehicle.
In doing so, a third party cover indirectly protects you by reducing your financial burden. In case of an accident, the insured is required to immediately inform the insurer about the same. On filing the claim, the insurer appoints a surveyor to assess the damage caused and verify the estimated cost of repairs or compensation. After the completion of the verification, the insurer settles the claim.
Significance of a third party insurance cover
- Knowing that your third party insurance would cover expenses arising from an unprecedented event gives you peace of mind
- The third party policy protects your finances against unplanned expenses
- The insurance covers the third party’s disability/personal injury, damages to property, and loss of life
- A third party policy has a relatively affordable premium compared to comprehensive policy (discussed later)
- A third party insurance policy does not offer monetary protection to the insured but reduces their financial liability by compensating the loss or damage incurred by the third party
Details to be furnished when submitting a claim
Gathering details including the following comes in handy when making a claim against third party insurance:
- Date, time, and description of the accident
- Description of the injuries sustained by the driver, passengers, and/or the vehicle/property
- Details of the insurance policy and the witnesses
- Photographs of evidence from the accident site
- Visibility and weather condition at the time when the accident took place
Process to claim third party insurance
The process of raising a claim against a third party policy differs from insurer to insurer. However, following are the common steps involved:
- Inform the insurer about the accident immediately or within the stipulated time mentioned in the policy document
- File an FIR at the police station nearest to the spot of the accident and keep a copy of the same
- Submit a duly filled application form along with required documents
- The insurer sends a surveyor to assess the damage caused by the accident. The surveyor verifies the estimated cost of repairs
- The surveyor files a report based on which the insurer settles the claim
Comprehensive insurance policy
By now you know that a third party insurance policy only offers basic financial assistance to a third party so they are compensated for loss/damage caused by you/your insured asset. The point is that a third party insurance policy doesn’t cover your losses. That’s where a comprehensive insurance policy comes into the picture.
Unlike a third party insurance cover, a comprehensive insurance policy covers your damages and losses in addition to those sustained by the third party. That’s why the premium of the latter is relatively higher than the former one. But let’s not forget that the premium is worth the comprehensive coverage that the policy offers. More about this in the coming days. Stay tuned.
Until then, get your assets insured with a third party insurance policy and protect your finances from unprecedented expenses.