Comprehensive vs third party car insurance?

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Insurance products are often looked upon as a paradox. It has several underlying layers and one literally needs to read between the lines to understand the policy documents as a whole. It’s a rather prevalent assumption that every insurance product works on the same principle which clearly isn’t the case. Besides, people often confuse between products that offer similar services but different coverage. Such minor technical differences can result in major losses at the time of claim filing or policy renewal.

One of the most common queries surrounding different terms related to insurance is the difference between a comprehensive and third-party car insurance plan. Are they interchangeable? If not, how do you decide which one to buy? What is the major difference? The primary difference between these two is based on the coverage offered to policyholders in each case. While the coverage provided by third-party insurance is limited to third-party damages and losses, comprehensive car insurance will cover your own damages as well.

If you’re an Indian resident, buying car insurance is more of a compulsion and less of a choice. As per the Motor Vehicles Act, any car on public roads has to be mandatorily covered by at least a third-party cover. Having said that, should you buy a comprehensive plan for your vehicle, or does a third-party cover works equally well?

Comprehensive insurance

As the name suggests, a comprehensive plan provides financial aid not only for third-party liabilities and losses but also for damages caused to you and your own car. Such plans can be customised by picking add-ons to extend the kind of coverage you require. Some of these add-ons include the return to invoice (the gap between the insured declared value and the invoice value of your car) cover, engine and gearbox protection and, consumables cover amongst others.

Breakdown assistance is a key add-on available in comprehensive car insurance that doesn’t count as a claim. You can avail it at any point if your insured vehicle experiences a breakdown in the middle of nowhere at any odd hour. The premium of comprehensive car insurance is relatively higher than a third-party cover, it still cost-effective. This is because the coverage and benefits received with the former are a lot higher. It eventually saves you a lot of money.

Third-party insurance

If you don’t want to spend much on car insurance and need it merely to fulfil the legal prerequisites, a third-party cover is an ideal choice. Going by its name, this policy will only protect you from damages and losses caused to a third party and won’t cover your personal damages.

It can include situations such as bumping into somebody’s vehicle or damage their personal property while driving. Meanwhile, if you hold a learner’s license and were driving without a valid driving license-holder as a co-passenger – your claim in those situations won’t be covered.

Key differences?

The basic difference between the two insurance policies is pretty evident by now. A third party cover is cheap, as the premium price is predetermined by the IRDAI based on your vehicle and engine, and covers only third-party damages. A comprehensive cover is expensive, as the premium is based on factors such as the city you drive in, car model and the add-ons you, and protects both damages to your own car and third-party damages as well.

Third-party covers are sufficient for older vehicles that are driven rarely while the comprehensive cover is required for vehicles in frequent use. Additionally, one can benefit from the No Claim Bonus (NCB) during car insurance renewals if you don’t make a claim that year.

No Claim Bonus (NCB) is a reward given by an insurance company to an insured for not raising any claim requests during a policy year. The NCB is a discount ranging between 20%-50% depending on the policy year and is given to the insured while renewing a policy.

“The NCB discount is offered on the premium amount during renewal. If you do not renew the comprehensive plan  90 days after the policy’s expiration date, then such non-renewal can lead to an NCB reset. Interesting to note is that NCB belongs to the owner of the car, and not to the car itself. So, if you’ve earned NCB discounts on your existing car, and you decide to buy another car, you can transfer the benefits to the new car,” said T A Ramalingam, chief technical officer at Bajaj Allianz General Insurance.

Are there any similarities?

Both types of car insurance will reject the claim if you were found driving under the influence of alcohol/drugs, or without a valid driver’s license. Moreover, any consequential damage taking place after the accident won’t be covered even under a comprehensive plan unless asked for a related add-on.

There are several benefits of upgrading your third-party cover to a comprehensive plan. It offers a wide range of coverage and takes care of multiple eventualities that one has no control over. The correct utility of an insurance policy is to be free from financial liabilities that one has no control over. Thus, one can try to make maximum use of such facilities and lead a stress-free life.