We know that an insurance policy is a contract between the insurer and the insured. The insurer safeguards the insured against any damage to property through contingencies in exchange for a premium amount. Today, you will learn that there is also a different terminology- “third party”, involved apart from the two mentioned ones. We are talking with respect to a vehicle insurance policy. This third party can make their claim for the car insurance compensation to the insured individual. Let us get to know about the different party insurances including the first party and third-party vehicle insurance. We have also discussed things that are covered and not, under these party insurance policies. Before getting onto that, we have defined the three types of parties in an insurance policy.
So, without any further delay, let us start our reading adventure!
Types of Parties in Car Insurance
First Party (FP)
The individual who purchases the insurance policy is the First Party in Car Insurance. In other words, the insurance policyholder is the First Party. They need to pay a premium to avail the car insurance.
Second Party (SP)
The Second Party accepts the premium paid by the First Party and provides the Terms and Conditions of the Policy to the First Party. The Second Party assures the First Party that if the car gets damaged, they will take care of the incurred losses. If the FP has paid timely premiums, he is obligated to receive compensation from the Second Party. In other words, the Second Party is there only to settle claims made by the FP or the TP.
Third Party (TP)
A third party refers to any individual that may get affected in a car accident involving the First Party. In case their property gets damaged, the First Party is liable to help them out. If the First Party has a car insurance contract with the Second Party, the latter is bound to pay up for the damaged property.
What is First Party Insurance?
First Party Insurance can be availed by the First Party. The policyholder can make an insurance claim to the Second Party if his vehicle was stolen, or damaged in natural calamities or man-made disasters.
First Party Insurance is also known as a Comprehensive car insurance policy. You can choose First Party Insurance by visiting the website offering such services. You need to pay a premium for purchasing the policy.
First Party Insurance is inclusive of Third-Party liability, Own Damage Insurance, and Personal Accident coverage.
Third-Party Liability: Third-party liability is where the insurance party will pay the third party on behalf of the Second Party in case of car damage.
Own Damage Insurance: The Own Damage Insurance has extensive coverage and provides for car damage owing to fire, flooding, vandalism, theft etc. It is costlier as compared to the basic liability policy.
Personal Accident coverage: Under personal Accident coverage, the insurance policy (third party) will provide a sum to cover the medical expenses of the injured individual. It will also provide to the Third Party in case of partial or permanent disability. If there is a loss of life in a car accident, the insurance party will provide the due amount to the family members of the deceased.
What is Third Party Insurance in India?
A Third Party insurance policy is an insurance policy that provides to the TP in case of any car damage, physical disability or loss of human life. The coverage and cost of availing a Third Party Insurance policy are less as compared to a Comprehensive insurance plan.
You can also customize with add-on plans in a First Party insurance policy or comprehensive insurance plan.
As per Motor Vehicle Act 1988, having at least a Third-Party insurance policy is mandatory without which the person may need to face legal consequences.
Who can make a Third Party Insurance Claim?
The Third Party which may include anyone (for example, a pedestrian) can claim to the FP (the car owner) for proper compensation for the physical harm caused to them or their property. Without having to settle the issue by providing a hefty sum to the TP, the Second Party or the insurer on behalf of the FP drops by to provide the due amount of the car insurance to the TP.
These claims are normally administered by the Motor Accidents Claim Tribunal. These claim settlement cases run in courts in great numbers and are therefore quite tedious and time-consuming.
Difference between First Party and Third Party in Car Insurance
Let us understand the important differences between First Party and Third Party in Car Insurance:
- FP pays a premium to avail of the benefits of a car insurance policy. TP doesn’t require to pay any premium for availing the benefits of a Third party insurance policy. The TP is at the receiving end of the sum amount of the damage caused by the FP.
- FP maybe anyone who decides to purchase a car insurance policy. On the other hand, TP maybe anyone who faces the consequences of car damage caused by an accident owned by FP.
- In an FP insurance policy, the FP is liable to receive compensation for the car damage. The car damage may result from natural calamities, theft, riots etc. In a TP insurance policy, the TP receives compensation for the car accident.
- TP liability is inclusive of FP and can be opted for by the latter. The FP can also select an extensive car insurance cover. Although the damage caused to TP can be overcome by providing a compensatory sum by the car insurance policy, they may decide to already avail of dedicated accident insurance and a health insurance policy.
- As per the Motor Vehicles Act, of 1988, FP may or may not purchase an FP car insurance policy whereas in the case of TP, purchasing a TP car insurance policy is mandatory.
- TP liability cover under the FP insurance policy is a must for a four-wheeler as per the Motor Vehicles Act. Acting otherwise can make the FP bear penalties. There is no such rule in the case of a TP while purchasing a car insurance policy.
- The FP can avail of a Personal Accident Cover of Rs 15 lakhs in case it fulfils all the terms and conditions of the car insurance policy. Such a Personal Accident Cover also comes with a TP liability policy. The TP will get insurance coverage depending on the damage done by the FP and the judgement of the Motor Accident Claims Tribunal.
Types of Car Insurance Plans
You can either go for a basic plan or an extensive car insurance plan. Under the basic plan, you have TP liability cover and its premium plan is stated by the IRDAI (Insurance Regulatory and Development Authority of India). You can upgrade to Comprehensive plans if you want extensive coverage including Own Damage Cover, TP coverage etc. You can also have add-on plans that can be bought at an extra premium. The premium limit is set by insurance companies for such policies.
What is Covered Under Car Insurance Plans?
In the case of the TP-only policy, you will receive a Personal Accident Cover along with a Third Party Cover. The TP can raise claims which will be fulfilled by the insurer in a TP-only policy.
A Comprehensive insurance plan has extensive coverage and consists of Personal Accident Cover, Own Damage Cover and Third Party Cover. It provides compensation against natural calamities, vandalism, theft etc. Other benefits or add-on covers of a Comprehensive plan are zero depreciation, Return to Invoice and Roadside Assistance.
What is Not Covered Under Car Insurance Plans?
The cases that are not covered under car insurance plans can be found in the policy’s Policy Wordings. Here are some instances of situations that are not covered under car insurance plans:
- If a claim is raised by an FP or TP that is not covered by the insurance policy, he/she will not be receiving the benefits of the car insurance policy.
- If the car insurance policy expired, one cannot avail of the compensation.
- If the driver is travelling in a drunken state or does not have a valid driving licence, he/she will not receive the car insurance policy coverage.
- If you are using a private vehicle to transport passengers or engaging in road racing, you cannot be included under the car insurance policy.
It is advisable to go through the brochure or read the fine print before you decide to purchase a car insurance policy. Get to know more about the basic or extensive plans, range of cover and other important requirements of first-party and third-party vehicle insurance. If you can get in touch with an insurance agent, purchasing a policy will be comparatively smoother. However, the websites providing different insurance plans are also easy to access, use and highly secure. If you have surrounding doubts regarding the insurance plans, make sure to get them clarified before you click the “purchase” button.
Would you go for a First-Party or a Third-Party vehicle insurance? Why?
Frequently Asked Questions (FAQs)
Which insurance is best: a first-party or a third-party?
The best insurance can be the insurance policy that serves both the first party and third party. Therefore, it is a Comprehensive car insurance plan that provides extensive coverage against any contingencies.
What is the difference between 1st party and 3rd party insurance?
In First Party insurance, the policyholder gets the insurance coverage whereas, in Third Party Insurance, the third party gets the insurance coverage.
What is 1st party insurance claim?
First Party insurance claim refers to the insurance claim made by the First Party (FP). For example, a car insurance holder claiming insurance for his damaged car is an FP insurance claimant.
What is 3rd party insurance claim?
The third Party insurance claim refers to the insurance claim made by the Third Party to the First Party in case of any damage received. The insurer pays the compensation to the Third Party.