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Difference Between First-party and Third-party Car Insurance

By Vikas Chandra Das
21 July 2022, 11:46 AM

In the face of adversity, all the things that you refused to do to equip yourself against it will come back to haunt you. This is why a pre-emptive purchase of an insurance cover for your brand-new car is super important. It will act as a shield from all the financial losses/ liabilities that might be incurred in the event of an unfortunate incident. Here is some basic information about a car insurance cover which will come in handy.

Parties Involved in Insurance

To understand the difference between third-party and first-party insurance, it’s important to understand what are the different parties that are involved in insurance. Doing so can make it easier to research policies and compare them.

  • The first party – is the car owner or the person who seeks to purchase the policy for his/her car.
  • Second-party – is the car insurance company or the insurer who will indemnify the first party in case of a loss or damages to the car.
  • Third-party – is an individual who has incurred any damage or loss in an event involving the fort party’s car.

Defining the Two Types of Car Insurance

There are two main kinds of car insurance based on the party that the policy seeks to protect namely - first-party car insurance and third-party car insurance. First-party car insurance refers to the indemnity that a policyholder receives in the form of personal accident cover.

Popularly known as the ‘act only cover’, third-party insurance is liability insurance purchased by the insured to get financial protection against the claims of another party.

Difference Between First-party and Third-party Car Insurance

Understanding the difference between first-party and third-party car insurance can help you select one that suits your needs the most. However, do note that getting third-party insurance is mandated by law, so it’s not something you should skip out on.

The following table illustrates the difference between third-party and first-party insurance:

BasisFirst-party insuranceThird-party insurance
MeaningProtection to the life and property of the insured against an unforeseen event.Protection against liability incurred by the insured for loss or damage caused to the third party due to the insured’s car.
RequirementGetting such a policy is not mandatory.Getting such a policy is mandatory as per law.
InclusionsCovers damages to insured’s body/property/car and personal accident cover.

The third-party eventualities covered under the policy are –

  • Partial disability
  • Permanent total disability
  • Bodily Injuries
  • Death
  • Property damage

The following are the exclusions you must keep in mind while purchasing the policy:

  • Damages incurred when the car was driven by an intoxicated individual or an individual who lacked a valid driver’s license.
  • The private vehicle was being used for commercial purposes.
  • Claims were raised against an incident not covered in the policy.

The following are the exclusions you must keep in mind while purchasing the policy:

  • The third-party insurance will not cover for repair of damages to the insured’s vehicle or if the insured has suffered some bodily injury himself.
  • In case of property damages, most insurance companies cover a maximum of INR 7,50,000. Any additional costs incurred will have to be borne by the insured.
  • The person driving the car was either underage or lacked a valid driver’s license.
  • The vehicle was being used for any illegal purpose at the time of the accident.
  • The accident was caused as a result of consumption of intoxicating substances.
  • The accident was deliberate.
  • The vehicle is stolen thereafter and is not in the possession of the insured.
Primary claimantThe primary claimant for this policy would be the policyholder, or the insured party. In other words, if you own this policy, then you are the claimant.The primary claimant for this policy would be the third party. In other words, if you have had a car accident, then the person in the other vehicle would be the claimant.
Manner of settlementThe settlements are made by the insurance company directly.The settlements are made by the Motor Accident Claims Tribunal.
Duty of the insurer to payFiduciary duty to pay the insured.There exists no such obligation and the insurance company may choose to contest the claim.

As you can see, a clear understanding of the aforementioned policies is essential to make a final decision about the kind of insurance policy that you should purchase for your most prized possession. Also note that with most first-person policies, there are a variety of add-ons that you can get to increase your cover further. This should help you feel more secure when you are on the road!

While researching policies, also make sure that you understand the difference between commercial and private car insurance policies, so that you don’t get the wrong one!

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