Car Insurance: Here’s How First-Party is Different from Third-Party

Whenever you see someone discussing car insurance, you may often hear the term ‘third party’ or even ‘first party’. If you are not well-versed with these insurance jargons, you may not know what they mean in your motor insurance policy. Read on to know about first party and third party in motor insurance and the major differences between them.

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Different Parties Involved in Car Insurance

Car insurance is a contract between two parties – the car owner and the insurance provider. However, every car insurance policy talks about third parties. Thus, a car insurance policy involves three types of parties. Take a look at them below:

1. First Party - In an insurance contract, the first party refers to the person who buys the insurance. Thus, the car owner is the first party in a car insurance policy. It is the first party who pays an insurance premium and makes a claim to receive benefits or compensation under the motor insurance policy.

2. Second Party - The insurance company from whom the car owner or the first party purchases the car policy is referred to as the second party. It is the second party who promises to provide financial protection to the first party’s car in case of any loss or damages. In exchange, the first party is liable to pay a premium amount to the second party.

3. Third Party - Any person besides the first party and the second party is considered a third party under four-wheeler insurance. It refers to any person who gets affected by the actions of the first party while he/she is driving the insured car. A third party can be anyone and does not have to be an acquaintance of the first or second party. For example, it could be a pedestrian walking on the street or the owner of a car moving in front of you. Under a motor insurance policy, the second party is liable to pay for any injuries, loss or damages caused to the third party on behalf of the first party.

Remember that it is the first party who initiates a contract with the second party in a bid to buy the best car insurance policy for his/her vehicle.

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Types of Car Insurance in India

You may be aware of the compulsory third party insurance cover that every car needs to legally have. To understand third party cover, you need to know about the various types of car policies. Broadly, a vehicle owner can purchase two types of four-wheeler insurance plans. They are - First Party and Third Party Car Insurance. Take a look at what is first party insurance and third party insurance:

1. First Party Car Insurance

First party insurance refers to the type of car insurance that aims to benefit the first party. Also known as comprehensive insurance, it provides own damage cover that makes the second party liable for covering any loss or damages caused to the first party’s car due to unfortunate events, such as natural disasters (earthquakes, storms, etc.), man made disasters (strike, vandalism, etc.), accidents, fire or theft.

A first party insurance policy also covers any third party liabilities of the first party for causing property damages, bodily injuries or death of third parties in an accident. Besides, comprehensive insurance also provides personal accident cover to the first party in case he/ she suffers from a disability or dies in an accident caused while driving the car.

For example, a cyclone creates havoc in your neighborhood destroying everything in its path. Unfortunately, it ends up wrecking your car completely. With a first party insurance policy, your car insurer will pay for the loss of your car and help you replace it with a new one.

Apart from the basic coverage, 1st party insurance also comes with a host of add-on covers for car owners. Add-on covers are the additional benefits that the first party can add to his/her comprehensive insurance by paying a higher premium amount to the second party. Zero depreciation, engine protection, roadside assistance, garage cash, return to invoice, etc. are some of the add-on covers that are commonly available under the best car insurance policy.

2. Third Party Car Insurance

Third party insurance refers to the type of motor insurance where the policy benefit is provided to a third party. It enables the second party to pay any third party legal liabilities of the first party in the form of monetary compensation to the third party. The legal liabilities of the first party arise out of bodily injuries, death or property damages to the third party with his/her car.

For example, you hit a pedestrian with your car while driving in heavy rain. Legally, it will be your responsibility to pay compensation to the third party victim. With a third party car insurance policy, your insurance company will pay compensation to the third party on your behalf.

In India, it is mandatory for every car to have at least a third party cover to legally ply on public roads as per the Motor Vehicles Act, 1988. If you don’t want to purchase first-party or comprehensive insurance, you can stick to buying third party liability-only insurance.

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First Party vs Third Party in Car Insurance

To give you a better understanding, the following table represents the difference between the first party and third party under a four-wheeler insurance policy. Take a look:

Categories First Party Third Party
Meaning It is the person who purchases a four-wheeler insurance policy from an insurance company. It is the person who is affected by the first person’s car and gets compensation from the second party on the first party’s behalf.
Policy Purchase It is the first party who initiates the purchase of a car policy. A third party cannot purchase a car insurance policy. The moment he buys a policy, he will become the first party
Who It Can Be? A first party can be anyone who owns a four-wheeler and buys the best car policy to protect the vehicle. A third party can be anyone apart from the first and second parties. For example, a person whose property has been damaged by the first party’s car.
Legal Mandate It is not mandatory to cover the first party’s interest under four-wheeler insurance as per the motor laws. It is mandatory to cover third parties’ interests under four wheeler insurance as per the motor laws.
Coverage A first party can be covered under personal accident cover and get own damage cover for his/her car with a comprehensive insurance policy. A third party can be covered under a third party motor insurance policy.
Insurance Benefits Dispensed A first party receives insurance benefits only under comprehensive insurance as part of own damage cover. A third party can receive insurance benefits under both first party and third party insurance.
Personal Accident Cover In case of a car accident, the first party will get a personal accident cover of up to Rs 15 lakh from the second party. In case of a car accident, the third party will get compensation from the second party up to an amount decided by the Motor Accident Claims Tribunal based on the extent of the damage caused.
Property Damage Cover In case the first party damages his/her own property with the insured vehicle, even the best car insurance will not cover the property damages. Only damages to the car will be covered under comprehensive insurance. In case of third party property damages, the second party will cover the damages up to Rs 7.5 lakh on behalf of the first party.

In a Nutshell

A car insurance policy is signed between the first party (i.e. the car owner) and the second party (i.e. the insurance company). The best four-wheeler insurance for your vehicle depends on what kind of coverage you are looking for in your car policy. Now that you know the difference between first party and third party insurance, you can easily decide whether you want coverage for only third parties or even for yourself and your car.

Written By: PolicyBazaar - Updated: 11 May 2022
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