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Wednesday, March 27, 2013

Comprehensive or Third Party Insurance for your vehicle

Background
Third party insurance and Comprehensive insurance are two options available for owners who want to insure their automobiles. Owning a new car is a delightful experience and a car is a thing of pride for the owners. Getting it insured is a necessity. There are people who consider their car as an asset and hence go for a comprehensive insurance, while others take it as a utility to cover distances and are satisfied with a third party insurance only.
Whatever the type of car insurance you opt for, it is a fact that getting insurance is a must for your car. Understanding the differences between a third party insurance and a comprehensive insurance can give you the required knowledge to take an informed decision and be prudent about optimizing your vehicle insurance expenses.


Why do you need to insure your vehicle?
Vehicle Insurance is important not only to protect your vehicle, but also to save you from any financial loss caused by accidents, damage or theft of your car. In addition, car insurance covers the safety of the co-passengers, someone else's property, pedestrians and yourself.
Also, it is mandatory under the Motor Vehicles Act 1988 to get your car insured as soon as you purchase it.

The parties involved
In insurance terminology, first party is the individual or business that is getting insurance policy and the insurance company is called the second party. Third party is the person or company that claims damages after suffering a loss through your car. Third party coverage is most commonly used in terms of auto insurance. Comprehensive insurance, on the other hand, as the name suggests, is full coverage that includes third party coverage.

What is Third Party Insurance (TPI)?
Third party coverage refers to damage or loss of property to third party. Third Party Insurance (TPI) is also referred to as Compulsory Third Party insurance (CTP). It indemnifies vehicle owners and drivers who are legally liable for personal injury to any other road user in the event of a motor vehicle accident. Your TPI insurance will cover you for claims made against you by other road users such as drivers, passengers, pedestrians, cyclists, motorcyclists and pillion passengers.
It is a compulsory form of insurance and the TPI premium is included in your registration payment.

Merits of Third Party Car Insurance
- Premium Calculation for 3rd Party Car Insurance is always lower against comprehensive policy
- TPI premium is independent of car value, and therefore gives value for money, especially for expensive cars.
- No Cap on Compensation Amount to the third party injured or damaged.

Demerits of Third Party Car Insurance
- Does not cover injuries or loss to the insured himself or his own car.
- Does not cover for loss, damage or theft of car.


What is Comprehensive Insurance (CI or CCI)?Comprehensive policy on the other hand is all inclusive and covers third party claims. Comprehensive Car Insurance not only covers your car for accidental damage, theft and fire. But also gives you a fixed liability cover for damage you may cause to someone else’s car or property.

Merits of Comprehensive Insurance
- Covers for injuries or loss to the insured himself or his own car.
- Covers for loss, damage or theft of car.
- The Limitations of 3rd Party Insurance is also the biggest difference between Third Party Car Insurance and Comprehensive Policy. However, along with 3rd party insurance, once can also take theft insurance. But combined premium will then be equivalent to Comprehensive Car Insurance Policy making it nonviable to have 2 insurance policies and rather go in for comprehensive policy.

Demerits of Comprehensive Insurance
- Expensive.


Conclusion

In general, Comprehensive insurance gives you a better piece of mind. So go for it.

But in case you want to get more prudent about the vehicle insurance expenses, then you can follow a general thumb rule that if your car is less than 7 years old, go for comprehensive insurance and later you can switch to TPI. The only logic behind this thumb rule is that a car older than 7 years has lesser probability of theft or financial impact of vehicle damage.

Cheers

Manoj Arora

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