Third-party vs Comprehensive Two-wheeler Insurance

Introduction

Two-wheeler accidents happen every day in India. As per a report by the National Crime Records Bureau (NCRB), two-wheelers in India accounted for 44.5% of total road accidental deaths.^[1] The government has mandated two-wheeler insurance for every motorcycle owner.

But here’s a catch! There are two types of two-wheeler insurance that you can get – third party insurance and comprehensive insurance. Which one should you buy? Explore two-wheeler insurance types in this blog to find the best fit for you!

1. Third-party Two-wheeler Insurance

The third-party two-wheeler insurance is a legal mandate in India to ride your bike on Indian roads and can invite penalties. 

The third-party two-wheeler insurance provides coverage for physical injuries, death, or property damages of the third party. While there is no limit on the liability covered for injury or death, the coverage for third-party property (usually third-party’s car) damage is capped at a max of  ₹1 lakh.  This means that when a claim is lodged for damages to a third party, the Insurance Regulatory and Development Authority of India (IRDAI) has set a ceiling on compensation at ₹1 lakh for insurance companies. Nevertheless, should the claim surpass this capped amount, the shortfall becomes the responsibility of the vehicle owner to settle.

Akash, has up-to-date two-wheeler insurance but chose only third-party coverage because of his limited budget. One day, Akash collided with a car, causing damage to his own bike and the car. 

Akash is now legally responsible to pay for damages caused to the third party’s car. Let’s see how his third-party insurance plays out in this scenario. 

• Informing the insurer: Akash files an insurance claim with his insurer immediately after the accident.
• Legal assessment: The car owner files an FIR and a case against Akash. The court finds Akash at fault and asks him to compensate the car owner for the damage.
• Damage assessment: The insurance surveyor inspects damage to the other driver’s car and estimates the repair cost to be  ₹20,000.
• Claim settlement: With third-party insurance, the insurer steps in to cover the repair cost of the car, which is ₹20,000 in this case (maximum limit is ₹ 1 lakh).
• Own damage not covered: Since Akash’s bike was also damaged, the bill came as ₹10,000, which he has to pay out of his pocket since he only has third-party insurance. Had he purchased comprehensive insurance, the insurer would have paid for both third-party liability of ₹20,000 and own-damage cost i.e., ₹10,000

Let us explore third-party two-wheeler insurance further by discussing its benefits and limitations.

Benefits –

1. Legal Compliance:

It is mandatory by Indian law for all two-wheelers. Non-compliance can result in a ₹2,000 fine and even 3 months in jail.

2. Third-party Coverage:

It covers financial liabilities for third-party injuries, death, and property damage. 

3. Low Premium:

It is affordable, with premium rates fixed by the insurance regulator, IRDAI.

Limitations –

1. Coverage Limitations:

Does not cover damages to your two-wheeler, personal injuries, or death.

2. Theft Non-compensation:

It will not provide any compensation to you if your two-wheeler gets stolen.

3. Damage from Natural Calamities:

It will not provide any compensation to you if your two-wheeler gets damaged 

by natural calamities like floods, earthquakes etc.

2. Comprehensive Two-wheeler Insurance

Comprehensive insurance covers both the liabilities of a third party and the damages to your two-wheeler in accidents, theft, fire, or natural calamity. It also has a range of add-ons for your benefits, such as roadside assistance, outstation emergencies and more. 

With comprehensive bike insurance, the above scenario would have played out differently for Akash:

• Immediate claim filing: Akash files an insurance claim with his insurer immediately after the accident. 
• Legal assessment: The car owner files an FIR and a case against Akash. The court finds Akash at fault and asks him to compensate the car owner for the damage.
• Comprehensive assessment: The surveyor inspects car and bike damage and estimates it to be ₹20,000 and ₹10,000 respectively. 
• Claim settlement: With comprehensive coverage, the insurer would pay ₹20,000 for third-party liability and ₹10,000 for own damage. The insurer would also cover those medical expenses if the car driver had sustained injuries. 
• Additional benefits: Based on his chosen add-on covers, Akash would receive compensation for his injuries( if any), reimbursement without considering bike value depreciation (zero depreciation cover) etc.

Let’s dive deeper into the benefits and limitations of this type of insurance:

Benefits :

1. Extensive Coverage:

It covers third-party liabilities, theft, and damage to your two-wheeler by calamities or accidents.

2. Optional Add-ons: 

It provides enhanced coverage with add-ons like zero depreciation, engine protection, roadside assistance, and more.

3. Customisable IDV:

You can customise the Insured Declared Value (IDV) based on your two-wheeler’s actual value.

Limitations :

1. High Premium:

It costs more than third-party insurance due to coverage for both the insurer and the third party.

2. Coverage Exclusions:

While insurance policies do not compensate for the vehicle’s natural wear and tear, this depreciation reduces the vehicle’s IDV as well. However, these things can be overcome by adding the relevant add-ons to your insurance. 

Comprehensive vs Third-party Two-wheeler Insurance

Here is a comparison of the two insurance plans for you to make an informed decision:

Key Takeaways

While third-party two-wheeler insurance is cost-effective, comprehensive two-wheeler provides broader coverage against accidents, theft, and calamities. The importance of adequate insurance cannot be stressed enough. Therefore, you must prioritise your requirements and make informed decisions.