Demystifying third party cover and comprehensive motor insurance policy

Your dream vehicle is your pride and joy. But spending so much of your money on something and not being able to protect it, is not fair, is it? Insurance is indeed a difficult subject to grasp and sometimes simply understanding the difference between comprehensive and third-party insurance maybe uninteresting.

As per the Motor Vehicles Act, 1988, third party insurance for automobiles is mandatory in India. However, when it comes to investing in an insurance plan, many customers fail to understand what’s the right policy they should buy. In fact, most vehicle owners seem to be confused while making a choice between a third- party insurance policy and a comprehensive insurance plan and are most likely to opt for the one that best fits their pocket. Read this article by Vijay Sinha, MD & CEO of COCO by DHFL General Insurance on the differences and similarities between third-party motor insurance and comprehensive motor insurance.

What is Third- Party Motor Insurance?

Third-Party motor insurance, also termed as liability cover, provides coverage against any legal liability arising out of injuries to a third-party motor or damage to third party property when the policyholder is at fault.

There is no limit to compensation in case of death or injury to a third-party. However, it excludes damages to the vehicle but comes with a personal accident cover, provided one has a valid driving license.

What is Comprehensive Motor Insurance?

A comprehensive motor insurance policy, also referred to as a package policy, offers additional coverage along with third-party coverage. In such a type of motor insurance, one gets financial protection in case of third-party bodily injury as well as damage to one’s own vehicle. This type of cover is not mandated by the law but includes third-party insurance which is the bare minimum that is mandated by the Motor Vehicles Act, 1988.

Usually, comprehensive motor insurance policies premium amount is more than the basic third-party insurance policy premiums, but it comes with an Own Damage insurance component. To name a few, a comprehensive policy includes coverage for theft of owner’s vehicle, damage of the vehicle during accidental damage, injuries suffered by the owner – none of which are covered in a third-party policy.

Third Party Motor Insurance or Comprehensive Motor Insurance

Now that you know the difference between Third-Party and Comprehensive Motor Insurance policy, which one should you pick? Both Third-Party insurance and Comprehensive Insurance have different use cases.

We advise third-party insurance only to customers who have older vehicles or to those who are on a tight budget. Since, third-party motor insurance doesn’t cover anything except third-party liability, it has a lower premium amount.

If one’s vehicle is old, say beyond 7 years one can usually consider a third-party motor insurance policy. Mainly because it is cheaper to pay for repairs for an older vehicle, than to pay higher premiums. This works if one’s older vehicle is barely used and does only a few trips in a month. One’s risk is low.

The comprehensive insurance policy includes the third-party motor insurance along with Own Damage Component. Hence, it financially protects through its extended coverage, and the additional premium amount for a comprehensive motor insurance policy is well worth it.

The fact that a comprehensive insurance policy covers oneself, one’s vehicle and the third-party liability, makes it a much better option. Specially, if one’s vehicle is in its first 6 year and is a mid or high segment vehicle.

The sole purpose of insurance is to make a vehicle owner, feel safe and secured. Accidents are unpredictable, and expenses are high, which could result in a dent in one’s bank balance.

Compare both the motor insurance options and make a well-informed choice based on your needs.

Authored article by Vijay Sinha, MD & CEO of COCO by DHFL General Insurance