Team AckoJul 22, 2021
Usually, the perception about insurance, or any other finance-related service, is that it is complicated. There are too many technical words to understand and the terms and conditions are difficult to follow. Some feel they need an expert to help them out when it comes to insurance, be it Life, Vehicle, or Health insurance. For example, not many people know the difference between a First-party and Third-party in car insurance. However, the combination of internet and smartphone is dismissing this perception.
In 2020, understanding car insurance is not only simple but also supplemented by a relatively easy online purchase process – you can insure your car within two minutes by visiting acko.com. However, it is your responsibility to take the initiative to understand some basic terms, which are not that difficult to comprehend. Best brains in the insurance industry are working towards making the policies easily understandable, accessible, and available. This article is about knowing two important terms in car insurance; First Party and Third Party. Read ahead to know more about them.
Car insurance is a contract. And like every contract, it is between two parties. It also discusses implications concerning third parties. Before you drown in confusion, here’s a simplified explanation of the types of parties in car insurance:
Have you heard the line – the customer always comes first? Well, this is an easy way to understand and remember who is the first party in car insurance. It’s you, the customer. When you purchase a car insurance policy from a certified insurer, you become the First Party in terms of the contract.
The insurance company from whom you have purchased the policy by paying the applicable insurance premium for your vehicle is the Second Party in the contract. The Second Party accepts the premium and offers the policy, which is a promise bound by the Policy Wordings. The Second Party assures the First Party that if anything untoward happens to the car, they will take care of it as per the terms and conditions of the policy.
A Third party is someone other than the First and Second party. It can be anyone; for example, a pedestrian walking on the street. These Third Parties can get affected because of your (First Party) car. Their property can get damaged because of a car accident. The First Party is liable to compensate the Third Party in such scenarios; and because the First and the Second Party have a contract in place, the insurer will handle the liabilities as a part of the third party insurance.
As a First Party in car insurance, you as a car owner can initiate the policy purchase process. You can approach the insurance company through their website and purchase a car insurance policy of your choice.
First Party insurance is a policy that is beneficial for you – the car owner. It is also known as a Comprehensive car insurance policy. This comprises the Third-party Liability policy, Own Damage Insurance cover, and a Personal Accident cover. You can also choose Add-ons with such a policy.
The Own Damage cover is one of the main covers of First Party insurance. It covers damages to your car. For example, the insurance company will compensate you for damages to your car because of fire, vandalism, flooding, etc. Theft is also covered in this type of insurance. Such type of policy is costlier than the basic Liability policy but it also offers extensive coverage.
Also Read: Bumper to Bumper Car Insurance
Here’s a table that distinguishes between 1st Party (FP) and 3rd Party (TP) in car insurance. It covers five points that shall explain the difference between the two. Note that the Second Party is the insurance company which has insured the vehicle in exchange for the insurance premium.
|Distinguishing Point||First Party||Third Party|
|Meaning||FP is the one who purchases the car insurance policy.||TP is neither the 1st nor the 2nd Party and can be affected by FP’s insured vehicle.|
|Scope||FP can be anyone who owns a car and insures it.||TP can be anyone who is injured by the insured vehicle or whose property gets damaged by the insured vehicle.|
|Insurance||FP has the option to buy the TP Liability cover or opt for an extensive Comprehensive car insurance cover.||Although TP injury/damage shall be covered to an extent by the FP’s car insurance policy, the TP can be proactive and secure oneself financially by opting for dedicated accident insurance or a health insurance policy.|
|Compulsion||The Motor Vehicles Act states that FPs must insure their four-wheelers with at least a TP Liability cover. Failing to do so can lead to penalties.||There is no such compulsion on the TP when it comes to buying an insurance policy.|
|Accident Cover||The FP receives a Personal Accident Cover of Rs. 15 lakhs with a car insurance policy. This cover is usually bundled with the TP Liability policy and the FP can raise a claim against it based on the stated terms and conditions.||In case of an accident, the TP can get compensated based on the extent of the damage faced and as per the judgement of the Motor Accident Claims Tribunal.|
Now that you are aware of the meaning of first party car insurance, the following sections will help you to explore the concept in more detail.
You have the option to purchase a basic plan or an extensive plan. The TP Liability cover is known as the basic plan. The premium for such a cover is stated by the Insurance Regulatory and Development Authority of India (IRDAI). You can enhance your coverage by buying a Comprehensive plan, which offers TP coverage as well as Own Damage cover. Plus, you can also buy Add-ons with such a policy. Add-ons are specific covers that can be purchased for an extra premium. The insurance companies are free to decide the premium for such policies.
It is suggested to go through the features and benefits of the policy stated on the website or in the brochure, read the fine print, and clear any doubts regarding inclusions and exclusions before purchasing any type of car insurance plan.
Also, read: Vehicle Scrappage Policy in India
In case you purchase a TP-only policy, you will be offered a Personal Accident Cover and a Third-party Cover. Here, a specific type of permanent injury to the owner/driver and claims raised against FP by the TP shall be covered as per the terms and conditions.
A Comprehensive plan shall cover the insured car with the above-mentioned points as well as offer Own Damage cover against fire, flooding, vandalism, theft, etc. Zero Depreciation, Return to Invoice, and Roadside Assistance as some of the Add-on covers that can be availed with a Comprehensive plan.
The list of exclusions will be mentioned in detail in the respective policy’s Policy Wordings. Overall, here are some points that highlight the instances for which the policy will not cover the insured car.
Claim raised against an incident that is not covered by the policy.
Claim raised for an incident that occurred when the policy had expired.
Driving in a drunken state.
Driving without a valid driving license.
Using a private vehicle for commercial purposes like transporting passengers or illegal activities like racing.
A 1st party insurance claim is an application sent to the insurance company to check the damaged car and repair it or compensate for the repairs based on the agreed terms and conditions. To raise an FP claim, you will have to call your insurance company and inform them about the incident. They will guide you regarding the required documents and state the next steps in the claim process.
Here’s how you can purchase a First-party (Comprehensive) car insurance policy from Acko General Insurance.
Step 1 – Visit www.acko.com.
Step 2 – Select ‘Car’ from the tab.
Step 3 – Enter vehicle details.
Step 4 – Share the required details like ‘Purchase year of the Car’.
Step 5 – Select plan.
Step 6 – Make Payment.
Step 7 – Download the policy after payment is processed.
Also, read: Own Damage Cover in Car Insurance Policy
A 3rd party car insurance policy is a legal requirement for driving a car in India on public roads. This policy safeguards the interests of those who might be injured or whose property might be damaged because of an accident involving the insured vehicle. This policy costs less than a Comprehensive plan; however, the latter offers enhanced coverage than the TP policy’s minimal cover.
Here’s an example that will help you to understand 3rd party insurance claims. A car goes out of control and runs into a pedestrian walking on the footpath resulting in permanent damage to his left leg. In such a scenario, the pedestrian, who is a Third Party, can raise a claim against the First Party, who is the owner.
Since the Second Party, which is the insurer, has covered the FP, the insurer will settle the claim as per the terms and conditions. In the absence of a policy, the FP would be required to pay the appropriate compensation amount to the injured.
Third-party claims are handled by the Motor Accidents Claim Tribunal. This is a dedicated court to settle such claims, which are in high numbers. Therefore, TP claim settlement can be a tedious and time-consuming process.
Also, read: Car Insurance Glossary
Here are some of the common queries surrounding different parties in a car insurance policy. If you have any specific concerns, feel free to write to [email protected]
What happens if I do not purchase either an FP or a TP car insurance policy?
Indian law states that all car owners must insure their vehicle with an insurance policy. You have the option to choose the basic TP plan or a wide-ranging Comprehensive plan. But choosing one is mandatory. Not purchasing any can lead to monetary penalties, confiscation of driving license, and it can even land you in jail.
Initially, I had purchased a TP-only policy. Now, I want to switch to a Comprehensive plan. How can I do it?
You can switch your car insurance plan while renewing the policy. Simply visit your preferred insurer’s website to buy a Comprehensive plan for your car while renewing the policy. Check the ‘How to Buy First-party (Comprehensive) Car Insurance from Acko: section of this article for more information.
Why is the premium for TP policy the same across insurers?
The TP policy’s premium is stated by IRDAI and insurers cannot charge a higher or a lower amount for it. It is a standardised policy therefore the premium is the same.
Will an FP insurance policy compensate me for the damages caused to my car if a tree branch falls on it and breaks the windshield?
Yes, Comprehensive car insurance plans do cover such instances subject to terms and conditions.
I want to purchase the Zero Depreciation Add-on from my insurer but I don’t want the Comprehensive plan. I just want the TP cover and the Add-on. Is it possible?
No, Add-ons cannot be purchased with a TP-only plan.
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