In case of an accident, the compensation sought by the third party for damages will be fully paid by your insurer

A recent study has shown that more than half the registered vehicles in the country are not insured. Either they haven’t ever had an insurance cover or it was not renewed after the first year. This is despite the fact that third party liability insurance is mandatory for vehicles in India.

If you think it’s a good idea to save money by not renewing your motor insurance policy, you are exposing yourself to potentially large liabilities. In fatal accidents or in those where a third party suffers serious damage, it is only your insurance policy which comes to your rescue.

The premium on the third party liability cover is fixed by IRDA. Last month, in its annual revision of premiums, IRDA made a proposal to hike the third party premium by 15-100 per cent for 2015-16. But the good news is that the regulator has finally increased it by only 14-30 per cent (for vehicles of different segments based on engine capacity).

Here’s more on third party liability cover.

What does it cover?

If your vehicle is insured and has a third party liability cover, the compensation sought by the third party for damages in case of an accident will be fully paid by your insurance company.

The point to note here is that such compensation can be quite large and disproportionate to the premium you save. The victim can claim for compensation under ‘no fault liability’ or ‘fault liability’ of the Motor Vehicles Act 1988.

If the claim is filed under the former, the claimant (one who applies for damages) will get only the minimum statutory relief, says Vijay Kumar, Chief Technical Officer (Motor), Bajaj Allianz General Insurance.

But, if it is a ‘fault liability’ claim, the compensation the claimant can ask for is unlimited, provided he is able to prove the other person’s negligence in driving.

However, do note that unlimited compensation is available only for bodily injury or loss of life. In case of damage to a property, the insurer’s liability is limited to ?7.5 lakh, says Sanjay Datta, Chief – Underwriting & Claims, ICICI Lombard. The rest has to be borne by the owner of the vehicle.

Insurance companies do not encourage claims on damage to one’s own vehicle from another party’s policy. “This is called a knock-for-knock agreement. Insurance companies have agreed with each other that claims on damage to the vehicle of their customers will be handled by themselves” says Sanjay Datta.

This means that if your vehicle is damaged in an accident, you should claim the damages to it from your own insurer (under the ‘own damage’ cover).

Only for bodily injury, loss of life or damage to property, will you be encouraged to claim against the third person’s policy.

However, there is no legal bar to claiming the damage to your own vehicle from the third person; by doing so you can save on the no-claim bonus on your policy.

Claim process

After an accident, when you want to claim for damages from a third party, you need to file a case in Motor Accidents Case Tribunal. This has to be done within 60 days of the accident, but courts are lenient and accept claims that come even a year or so later, say experts.

When filing the case, you will be asked for the copies of FIR and surveyor’s report (in case of damage to property) and proof of the expenses you are claiming.

KN Murali, Head — Motor Insurance, Royal Sundaram, says that the court will summon the owner/driver of the reported vehicle and also the insurance company.

The insurance company will then check if the driver had a valid licence, insurance policy, etc. before he decides to pay the claim. The support from an insurance company will however come to you here only if you are claiming for bodily injury or loss of life or damage to property.

If you are claiming for damage to your own vehicle on third party insurance despite having a comprehensive motor policy, your insurer will not help you out in the legal battle, he adds.

On the other hand, if you are one who has received the notice from the court stating that a third party has filed a claim against you, you have two options, says, Vijay Kumar, “The customer can either ask the insurance company to take care of the legal proceedings by itself or authorise the insurer to appoint a lawyer who will contest the case.”

But, here again, the insurance company will see if there has been no breach in the policy and only then will it proceed to appoint a lawyer.