Do not get confused by the insurance jargon used in the policy paperwork. If you are buying car insurance online for the first time, then you must understand what each insurance industry-specific term means to be able to comprehend your policy better.
A car insurance plan is an agreement between an insurance provider and the policyholder, or the one who buys the policy. As per the agreement, the policyholder must pay the policy premium amount to the insurer. In return, the insurance company would compensate the insured for the loss as specified in the policy document.
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In India, vehicle owners must have at least third party insurance to be able to take their vehicle to public roads. If you are caught driving your car without valid insurance, you will have to pay hefty fines and/or face imprisonment. Insurance usually involves three parties. These are:
- First party: The policyholder is the first party. The first party pays for the policy premium, and, in return enjoys the benefits of the insurance policy.
- Second party: The insurance company from which you buy an insurance policy is the second party or the insurer. The second party undertakes the risk of any unforeseen situation by paying compensation in the event of an accident.
- Third-party: A third party is neither the insurance company nor the insurance purchaser. A third party is anyone who is impacted or faces damage due to the insured vehicle. In such a scenario, the insurer will compensate the third party on the insurance holder’s behalf. For example, if you injure someone with your car, your insurer will cover the cost of the person’s medical care.
H2: First-party car insurance
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It is a pleasure to own a car. You have invested substantially to obtain yourself and your family a fantastic set of wheels. However, repair costs may also strain your finances if anything happens to your car due to a mishap. First-party car insurance online saves the day in such a situation.
Also known as an own damage insurance policy, first-party insurance covers the cost of repairs in case your car gets damaged due to an accident, natural calamity or manmade situation. Additionally, it offers personal accident coverage. This coverage compensates the policyholder or their family in the case of a vehicle accident-related injury or death of the insured. In this type of insurance, you, the first party, are the primary beneficiary.
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H2: Third party car insurance
As the name implies, third party insurance coverage aims to protect you against third-party obligations and claims. For example, sufferers may seek damages for injuries sustained or bring legal action against you if your vehicle causes them harm. The settlement sum may be high, which would be difficult for your finances. Third party insurance helps by covering third parties’ damages and/or medical expenses on your behalf. Besides, third party insurance is a mandatory requirement as per the Motor Vehicles Act of 1988.
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H2: Difference between first-party and third-party car insurance
Selecting the best car insurance online would be easier if you know the difference between these policy types. While you must buy third-party insurance for sure, you can choose to invest or not invest in first-party insurance based on your needs.
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Basis | First party insurance | Third party insurance |
Meaning | Coverage against an unforeseen incident for the insured’s life and possessions. | Coverage against the insured’s potential responsibility toward third-party losses or damages brought by the policyholder’s vehicle. |
Requirement by law | This policy is optional. | Mandatory as per the law. |
Inclusions | The policyholder’s body, possessions, vehicle, and personal accident coverage are included in the coverage. | The following third-party mishaps are protected under the third-party car insurance online plan:Bodily injuriesDeathPartial disabilityPermanent total disabilityProperty damage |
Exclusions | Damages sustained when someone who was drunk or did not possess a valid driver’s licence operated the vehicle.The personal car was used for business purposes.Claims made for reasons that are not covered by the policy. | The policyholder’s injuries and damages are not covered.Most insurance providers provide up to Rs 750,000 coverage only. Any extra expenses must be paid by the insured.If the driver was a minor or didn’t have a valid licence to drive a vehicle.The car was being used for illegal activity when the accident took place.Drinking alcohol or using other drugs while driving contributed to the accident.It was a planned accident.The insured did not possess the car and was reported stolen before the accident. |
Primary claimant | The policyholder, or insured person, would be the primary beneficiary under this car insurance online plan. | The third party would be the claimant under this plan. To put it another way, the claimant in a vehicle crash would be the driver of the other vehicle. |
Manner of Settlement | The insurance provider handles the settlements directly. | The Motor Accident Claims Tribunal is in charge of making the compensation. |
The obligation of the insurer to pay | To pay the insured is a fiduciary obligation. | The obligation to pay the insured does not apply here. The insurance provider may decide to challenge the claim. |
H2: Conclusion
When buying car insurance online, you must know the nitty gritty of different types of policies to make an informed decision. While third party insurance will cover you against third-party liabilities, it will not help you cover own damage. Meanwhile, first-party insurance, which offers coverage for own damage, comes at a higher premium cost. In addition, you can enhance coverage by paying extra to meet your needs.
You may choose your coverage type based on your needs and budget. Although, it is always better to opt for a comprehensive policy, doing that makes sense only if you use your vehicle that frequently and for long-distance travels. If you own an old car and use it sparsely, then a third-party insurance policy may suffice. Reach out to an insurance agent or insurance company executive to assess your insurance needs.
Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.