Introduction:
Car insurance is mandatory for every car owner in India. Third-party car insurance is the minimum insurance required by the Indian Motor Vehicles Act, 1988. It protects the car owner from financial liabilities that may arise out of damage to third-party property or injury to third-party persons. Third-party car insurance is comparatively inexpensive to comprehensive car insurance as it covers only third-party liabilities.
In this guide, we will take a deep dive into understanding Third-Party car insurance prices in India, what they are, and how to calculate them.
What is third-party car insurance?
Third-party car insurance is an insurance policy that covers the financial liabilities arising out of damage to the third-party property, injury to the third-party person including death, caused by the policyholder’s car. Third-party car insurance does not cover any damage to the policyholder’s car itself.
It is mandatory for every car owner in India to have at least a third-party car insurance policy. The policyholder can opt for comprehensive car insurance that offers additional coverages besides covering third-party liabilities.
How to calculate third-party car insurance prices:
Third-party car insurance prices are decided by the Insurance Regulatory and Development Authority of India (IRDAI). The prices are revised annually based on various parameters such as the make and model of the car, location of the car, age of the car, and engine capacity.
The premium for third-party car insurance is calculated according to the below-given formula:
Premium = Own Damage Premium – No Claim Bonus + Liability premium as per Tariff
The premium amount depends on the Insured Declared Value (IDV) of the car, which is the maximum amount that can be claimed in the event of theft or damage to the car. The IDV varies as per the age of the car, and it decreases as the car gets older. Therefore, the premium for third-party car insurance is also higher for the new cars compared to the older cars.
The IDV is calculated according to the below-given formula:
IDV = (Ex-Showroom Price of the car – depreciation)
Depreciation rate based on the age of the car:
Age of car Depreciation rate
Less than 6 months 5%
6 months to 1 year 15%
1 to 2 years 20%
2 to 3 years 30%
3 to 4 years 40%
4 to 5 years 50%
Factors that affect third-party car insurance prices:
1. Make and Model of the car: Third-party car insurance prices vary based on the make and model of the car. Luxury cars and SUVs have a higher premium compared to small cars due to their high value.
2. Location of the car: The location of the car also plays a significant role in determining third-party car insurance prices. Cars kept in high-risk areas such as crime-prone areas have a higher premium compared to other locations.
3. Age of the car: The age of the car is also a crucial factor in determining the third-party car insurance premium. Newer cars have a higher premium compared to older cars.
4. Engine Capacity: Cars with larger engine capacity have a higher premium compared to cars with smaller engines.
5. Anti-Theft Devices: Cars with anti-theft devices such as GPS and immobilizers have a lower premium compared to cars without these devices.
6. Claim History: The third-party premium is calculated by deducting the No Claim Bonus (NCB) from the Own Damage Premium. The NCB is given to the policyholder as a discount on the renewal premium for every year of no claim. Higher the NCB, lower the premium.
7. Personal Accident Cover: The third-party car insurance policy includes personal accident cover for the policyholder by default. However, the policyholder can choose to increase the sum assured of personal accident cover by paying an additional premium.
Types of Third-Party car insurance policies
1. Third-Party car insurance policy: This policy covers the policyholder against financial liabilities arising out of damage to the third-party property and injury to the third-party person. It is required by law for every car owner in India.
2. Standalone Third-Party Liability Policy: A standalone third-party liability policy is a comprehensive third-party insurance policy that covers the same risks as a standard third-party policy along with additional benefits. This policy can be purchased by anyone who wishes to enhance their third-party car insurance coverage further.
3. Long-term Third-Party Liability Policy: The long-term third-party liability policy provides coverage for three years at a time. As per the new regulations from the IRDAI, it is mandatory for new vehicles to have a long-term third-party liability policy.
Advantages of third-party car insurance:
1. Legal Compliance: Third-party car insurance is mandatory as per the Indian Motor Vehicles Act, 1988. By having third-party car insurance, car owners comply with the legal requirements and avoid any legal penalties.
2. Financial protection: Third-party car insurance covers the policyholder from financial liabilities that may arise out of damage to third-party property or injury to third-party persons.
3. Affordability: Third-party car insurance is comparatively less expensive compared to a comprehensive car insurance policy.
4. No claim bonus: Third-party car insurance policies also offer NCB as a reward for not filing any claims for a year. The NCB ranges from 20% to 50% of the OD premium.
Disadvantages of third-party car insurance:
1. Limited Coverage: Third-party car insurance covers only third-party liabilities and does not cover damage to the policyholder’s car.
2. Lesser benefits: Third-party car insurance policies offer limited benefits compared to comprehensive car insurance policies.
3. No Own Damage Cover: Third-party car insurance does not cover any damage or losses to the policyholder’s car.
4. High-Risk Areas: Cars kept in high-risk areas have a higher premium under third-party car insurance policies.
Conclusion:
In conclusion, third-party car insurance is mandatory for every car owner in India. It covers the policyholder against financial liabilities that may arise out of damage to third-party property or injury to third-party persons. Third-party car insurance is affordable compared to comprehensive car insurance policies. The premium for third-party car insurance depends on various factors such as Make and Model of the car, Location of the car, Age of the car, and Engine Capacity. The policyholder can enhance their third-party car insurance coverage by purchasing a Standalone Third-Party Liability Policy. The third-party car insurance policy is beneficial in terms of legal compliance and financial protection, but it does not cover any damages to the policyholder’s car. It is advisable to evaluate and compare different policies from different insurers and choose the most suitable plan as per the policyholder’s requirements.
HTML Headings:
1. Introduction
2. What is third-party car insurance?
3. How to calculate third-party car insurance prices?
4. Factors that affect third-party car insurance prices
5. Types of Third-Party car insurance policies
6. Advantages of third-party car insurance
7. Disadvantages of third-party car insurance
8. Conclusion
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