Third-Party Car Insurance: The Bare Minimum You Need To Drive Legally

In the event of an accident involving the insured vehicle, third-party motor insurance is required to provide financial protection against legal liabilities resulting from third-party injuries, deaths, or property damage caused by the insured vehicle. This ensures that victims will be compensated fairly and shields car vehicle owners from financial burdens. 

While third-party insurance is mandatory, it does not cover any damages to your own car or if your vehicle is stolen, and so on. So, it is the bare minimum policy you need to drive your car, but it does not cover any costs in case your car meets with an accident and you suffer a loss. 

How Does Coverage Work

For injuries or death, there’s no upper limit anymore. It used to be capped, but not now. Courts decide based on factors like the victim’s earnings, age, and dependents. That’s why payouts can vary a lot—some cases see families receiving crores, while others get much smaller amounts.

“For property damage, though, the cap is still Rs 7.5 lakh. That amount has stayed the same for years, even though costs have gone up. If someone crashes into a luxury car or a high-end storefront, Rs 7.5 lakh might not even come close to covering the damage,” says Kunal Varma, CEO and co-founder, Freo. 

“So, for property damage, the insurance's terms limit the insurer's liability for TP property damage. If the compensation is greater than the limit, the owner of the vehicle is responsible for any additional costs,” says Chheda. 

However, the policy does not cover certain claims for instance, claims will not be processed if a private vehicle was used for business purposes without the required registration or notification to the insurer. 

“In a similar vein, a claim may be denied for violating the terms of the policy, such as driving outside the designated area, driving without a valid license, or driving while intoxicated. In addition, the insurer may be exonerated of responsibility if the Motor Accident Claims Tribunal (MACT) determines that the policyholder has violated the terms,” says Neel Chheda, Chief Underwriting & Data Science Officer, Tata AIG General Insurance. 

How Much Does It Cost 

The regulator fixes these rates—Irdai specifically. You can't shop around for better third-party rates since they're the same everywhere.

Small cars pay around Rs 2,100, medium ones about Rs 3,400, and those with bigger engines (over 1500 cc) pay nearly Rs 8,000 yearly. Bikes are cheaper—starts at like Rs 500-something for those tiny engines and goes up to Rs 2,800 for the big bikes.

“Since they removed that cap on injury compensation, I think premiums will keep climbing since insurance companies hate unlimited liability,” says Varma.