Comprehensive Vs. Third-Party Car Insurance: Which is the Better Bet?

Key Highlights:

• Third-party insurance, a legal requirement, covers only damage or injury caused to another person, vehicle or property.
• Comprehensive insurance, an optional necessity, covers both third-party liabilities and damages to the policyholder’s own vehicle.
• For first-time car buyers, choosing a comprehensive insurance policy (with relevant add-ons) is always the ideal choice if their budget permits.

Vehicle insurance is an agreement documented between a vehicle owner and an insurance company. By paying a fixed premium, the insurer ensures financial protection against various risks on the road. If an accident or related damage occurs, the insurance company compensates for the repair costs as per the policy terms and conditions. The Insurance Regulatory and Development Authority of India (IRDAI) regulates all motor insurance policies in the country to aid fair compensation.

What is Third-Party Insurance?

Third-party insurance is a legal requirement for all motor vehicles in India. The term ‘third-party’ refers to the person or property affected by the policyholder’s vehicle, and hence, the policy covers damages or injuries caused to another person, vehicle or property by the insured vehicle. It does not cover any damage to the policyholder’s own car. If the insured vehicle is involved in an accident that causes injury, death or damage to someone else’s property, the insurer pays the compensation to the ones affected.

Importance of Third-Party Insurance

The primary objective of third-party insurance is to protect the policyholder from legal and financial liabilities in the event of mishaps involving other people on the road. In other words, the vehicle owner need not pay for those expenses out of pocket. The Motor Vehicles Act 1988 (as well as the 2019 iteration) deems it mandatory for every vehicle on Indian roads to have valid third-party insurance. Driving without insurance is a punishable offence and can result in fines or even imprisonment.

What is Comprehensive Insurance?

Comprehensive insurance offers total protection to the car owner in the event of a road accident. It combines third-party coverage with additional compensation for the policyholder's car. It generally covers accidents, theft, fire, vandalism, natural disasters and other unforeseen events, although the extent of coverage should be verified in the terms and conditions.

In addition, comprehensive policies often offer add-ons such as zero depreciation, engine protection, roadside assistance, and consumables cover. These add-ons, though raising the premium significantly, promise total monetary protection in an accident. 

Importance of Comprehensive Insurance

Comprehensive insurance is ideal for individuals who prioritise total peace of mind. It guarantees the policyholder is financially protected in almost every variation of a road accident. Through add-ons, comprehensive insurance polices help maintain the car’s value by covering all forms of cosmetic or mechanical repairs and replacements without shortcomings. Comprehensive insurance is often the ideal choice for premium cars, as the repair bills can be very high. Barring the additional insurance costs, car owners who live in areas prone to floods, theft, or accidents should opt for comprehensive insurance coverage. 

Difference Between Comprehensive and Third-Party Insurance

As mentioned earlier, third-party insurance covers only losses or injuries suffered by others in an accident caused by the insured vehicle. Comprehensive insurance, however, extends coverage to both third-party liabilities and damages to the policyholder’s vehicle. Naturally, the latter costs more in premiums.

IRDAI fixes the premium for third-party insurance each year, while the pricing of comprehensive insurance plans depends on factors such as the vehicle’s brand, price, age, location and add-ons. The insurance company has the upper hand in deciding the premium. For instance, the insurer may charge a higher premium for the same vehicle make and model if it is used at a location prone to theft or natural disasters. Meanwhile, the very same vehicle could be charged less if driven predominantly within a ‘safe’ environment.

Premium Calculation

The premium for third-party insurance is standard and determined by the IRDAI based on the engine capacity of the vehicle. It remains the same across all insurance companies.

Comprehensive insurance premiums vary depending on factors such as vehicle category, location, age and additional covers opted by the policyholder. The Insured Declared Value (IDV) of the car, which represents the vehicle’s current market value, also affects the premium. A higher IDV implies higher coverage and hence, a slightly higher premium.

Claim Process

In third-party insurance, if the insured vehicle causes harm to another road user or their property, the affected party files a claim through the Motor Accident Claims Tribunal. The tribunal decides the compensation, which is then paid by the insurer.

In the case of comprehensive insurance, if the policyholder’s vehicle is damaged, they can raise a claim directly with the insurance company. The insurer sends a surveyor to assess the damage and estimate repair costs. Post this, the insurer either reimburses the repair expenses or settles the bill directly with the workshop through cashless payment, if the repair is done at an authorised service centre recognised by the company.

In either case, submitting accurate documents and evidence is very important. Lately, dash cam footage has become the first and final evidence required in quick insurance claims.

Add-Ons in Comprehensive Insurance

One popular comprehensive insurance add-on is ‘zero depreciation cover’, which lets the policyholder claim the entire cost of replaced parts without any deduction in the name of wear and tear. Another popular add-on is ‘roadside assistance’, which, as the name suggests, helps during breakdowns or emergency halts. The engine protection cover serves as a safeguard in the unlikely event of flood damage or incorrect fuel intake. Consumables cover pays for the replacement of components such as nuts, bolts, brake pads, bushings and engine oil during a major repair. Needless to mention, these add-ons significantly increase the premium.

Exclusions in Coverage

Neither policy covers damages if the driver was found under the influence of alcohol or drugs. Claims are also invalid if the vehicle is involved in illegal acts or driven without a valid driving licence. If the damage is proven to be a result of preventable scenarios such as road rage or street racing, no coverage is approved. In fact, comprehensive policies may not cover mechanical repairs or modifications done without promptly informing the insurance company. Once again, never fail to read the terms and conditions carefully.

Renewal and Lapse

Both forms of insurance policies have to be renewed annually or as per the specific policy term. If a policy lapses, the vehicle remains uninsured and the owner is vulnerable to financial and legal troubles. Most insurance companies offer online renewals that make the process hassle-free. Renewal before the expiry date also gains perks such as No Claim Bonus, which reduces the premium in the renewed year if no claims were made during the terminating period.

Choosing the Right Policy

Both comprehensive and third-party insurance policies aim to safeguard owners from financial losses. For older, budget cars, third-party insurance may be sufficient as the repair costs are generally low. However, for brand-new or premium cars, comprehensive insurance is crucial for total peace of mind.

Understanding the key differences between the two helps make a wise decision based on one’s specific needs and budget, especially if new to car ownership. The right insurance policy is not just about lowering expenses but also about remaining financially protected and legally compliant.

FAQs

1. Does comprehensive insurance include third-party cover?
Yes, comprehensive insurance automatically includes third-party liability cover along with protection for the insured vehicle.

2. Does third-party insurance cover theft or fire?
No, third-party insurance does not cover theft, fire, or damage to your own car. It only covers harm to others or their property.

3. Can I choose add-ons with third-party insurance?
No, add-ons are available only with comprehensive insurance. Common add-ons include zero depreciation, roadside assistance, and engine protection.

4. Does comprehensive insurance cover accidents caused by the owner’s fault?
Yes, comprehensive insurance covers own damage even if the policyholder is at fault, subject to the terms and conditions of the policy.

5. What happens if I only have third-party insurance and my car is damaged?
You will have to bear the repair costs yourself, as third-party insurance does not cover own damage.