What is third party car insurance? Forbes India Consultant

A third party auto insurance plan is one that covers the legal liability you face in the event of third party losses. In the event that your vehicle causes damage to a third party vehicle, personal property and bodily injury, the person may be held liable for the financial loss suffered by the individual. It is a type of plan that covers these financial losses and compensates the third party on your behalf.

As per the Motor Act 1988 which governs traffic rules in India, every vehicle traveling on Indian roads must have valid third party coverage on it. A third party car insurance policy is the minimum insurance coverage that should be necessary for every car. The cover protects the interests of third parties in the event that they suffer any financial losses due to the vehicle. Let’s understand what this policy is all about.

Features of a third-party auto insurance policy

Here are some of the salient features of outdoor coverage –

  • Cover is mandatory. If you are caught without a valid cover, you will face legal complications including fines, penalties and even imprisonment in extreme cases.
  • If you buy a new car, third-party coverage must be purchased for a continuous period of three years. This long-term coverage is also mandatory
  • However, in the case of older cars, only annual coverage is available
  • The third party auto insurance premium is set by the Insurance Regulatory and Development Authority of India (IRDAI). Depends on the cubic capacity of the car
  • The premium is fixed for all insurance companies
  • IRDAI reviews the premium each year and may change rates if necessary.

Coverage under third party car insurance

This third party auto insurance plan covers financial liabilities that arise when your vehicle causes any of the following losses –

  • death of others
  • Bodily injury to a third party
  • Third Party Property Damage

In any of these cases, if you have a financial liability, the policy will cover the liability and pay the compensation. However, if your vehicle sustains any damage or loss and incurs a financial loss, this loss will not be covered by the policy.

Here are some examples to understand coverage –

In the third and fourth cases, your car was also damaged. However, a third party auto insurance policy does not cover these losses. If you are seeking coverage for yourself, it is advisable to obtain a comprehensive car insurance policy.


In the event of death or bodily injury, third-party auto insurance plans do not limit the extent of coverage. In other words, coverage is unlimited. The document will pay the amount of compensation dictated by the Motor Accident Claims Tribunal (MACT).

However, in case of property damage, the amount of coverage is limited to a maximum of INR 7.5. If the claim is more than that, the increase will constitute your personal expense.


Under a third party auto insurance plan, claims that occur due to the following situations are not covered –

  • Driving without a valid license
  • Driving under the influence of alcohol and/or drugs
  • Driving outside India
  • Participation in criminal acts or work of a dangerous nature

Third party car insurance premiums

As mentioned earlier, the premium is set by IRDAI. It depends on the following factors -.

  • Cubic capacity of the car
  • Vehicle type – private or commercial cars
  • Policy term – annual installment or long-term installment for three years
  • Vehicle type – fuel car or electric cars
  • Available discounts

The Current premium ratesexcluding GST, effective June 1, 2022, as follows-

for private cars

For commercial vehicles carrying up to 6 passengers for hire or for a bonus

For commercial vehicles carrying more than 6 passengers for rent or a bonus

For private electric cars

For commercial electric vehicles carrying up to 6 passengers for hire or a bonus

For commercial electric vehicles carrying more than 6 passengers for rent or a bonus

IRDAI allows discounts on these rates. These discounts are as follows –

If your own car is registered as an old car, you will get a discounted rate from a third party. The discount is 50% on the third party installments specified under the Indian Motor Tariff (IMT).

If you buy a hybrid electric vehicle, you can claim a 7.5% discount on third-party premium rates.

Third party car insurance claim process

If you are making a third party claim, the process is as follows –

  • Inform your insurance company immediately and register your claim
  • Submit an FIR to the police that includes the details of the claim. Also, keep a copy of the FIR as it will be required when you file a claim with your insurance company.
  • The case will be brought to the Motor Accident Claims Tribunal (MACT). The court will pass its judgment on the amount of the claim that you have to pay the third party to cause the financial loss.
  • Once MACT has issued its judgment, notify your insurance company and file your third party claim
  • The insurance company will then reimburse the third party on your behalf.

To file a third party claim, submit the following documents to the insurance company –

  • Claim form filled out and signed
  • A copy of your insurance policy
  • A copy of the police police information report
  • A copy of your driver’s license
  • A copy of your proof of identity
  • Any other police reports, if any

Benefits of third party car insurance

Covering your vehicle by a third party is beneficial for the following reasons –

  • You can avoid legal fines and penalties because the coverage meets the requirements of the Motor Vehicles Act 1988
  • Provides protection against suspension of your driver’s license
  • Affordable premiums and the same across insurance companies
  • Third-party auto insurance provides legal protection from time-consuming legal hassles

You get a financial guarantee knowing that any claim from a third party will be dealt with by the policy

Is third party car insurance enough?

If you look from the legal point of view, a third party auto insurance policy is sufficient to take care of the requirements of the Motor Vehicle Act. If you have coverage, you can avoid legal complications. However, when you look from a coverage standpoint, the third party policy definitely does not exist. The policy does not cover damage to your vehicle due to natural or man-made disasters. Moreover, if the car is stolen, you will not receive compensation for the loss incurred.

This is why a comprehensive car insurance policy is recommended for a wider range of coverage. The comprehensive policy covers the mandatory legal liability of the third party and also extends the coverage to include damages to your vehicle. As such, you get compensation even if your car is damaged or stolen. Moreover, with the optional extra coverage benefits, you can add more layers of protection and get 360 degree coverage.


Insure your vehicle under the third party policy and fulfill your legal duty. The policy provides financial security in the event of third-party liabilities where compensation can be significant.

Moreover, you abide by the rules set forth in the Motor Vehicles Act and you can avoid penalties. However, if you are looking for a comprehensive coverage, go for a comprehensive plan. Customize the plan with add-ons for comprehensive protection and driving without any financial concerns.

Leave a Comment