Third party liability policy is compulsory for every motorized vehicle in India. If you own a car and you do not have a third-party liability insurance, you are actually doing an illegal act. If you are insured, you definitely do have the third party liability cover, because no insurer will offer an insurance policy without one.

Your typical cover note will have two parts. The third party liability part will look like this (for a car fitted with 2.5 Liter Engine)

For private cars, the fixed premiums (rates are fixed by the insurance regulator IRDA) are as follows:

Motor third-party insurance or third-party liability cover, also referred to as the 'act only' cover, is a statutory requirement under the Motor Vehicles Act. It is referred to as a 'third-party' cover since the beneficiary of the policy is always someone other than the two parties involved in the contract i.e. the insured and the insurance company. The policy does not provide any benefit to the insured; however it covers the insured's legal liability for death/disability of third party loss or damage to third party property.

Under a third party insurance policy the insurance company agrees to indemnify the insured person, if he is sued or held legally liable for injuries or damage done to a third party. The insured is one party, the insurance company is the second party, and the person the insured may have injured and who claims damages against the insured is the third party. A “third party” includes everyone (other than the contracting parties to the insurance policy), be it a person traveling in another vehicle, one walking on the road or a passenger in the vehicle itself which is the subject matter of insurance policy.

The Relevant Provisions of Motor Vehicles Act,1988 are as follows -

Chapter 11 (Section 145 to 164) provides for compulsory third party insurance, which is required to be taken by every vehicle owner.  Section 146(1) states that no person shall use or allow using a motor vehicle in public place unless there is in force a policy of insurance complying with the requirement of this chapter.[3] Contravention of the provisions of section 146 is an offence and is punishable with imprisonment which may extend to three months or with fine which may extend to one thousand rupees or with both (section 196). Section 147 provides for the requirement of policy and limit of liability. Every vehicle owner is required to take a policy covering against any liability which may be incurred by him in respect of death or bodily injury including owner of goods or his authorized representative carried in the vehicle or damage to the property of third party and also death or bodily injury to any passenger of a public service vehicle. According to this section the policy not require covering the liability of death or injuries arising to the employees in the course of employment except to the extent of liability under Workmen Compensation Act. Under Section 149 the insurer have been statutorily liable to satisfy the judgment and award against the person insured in respect of third party risk.

What does this mean for you?

In the normal use of your vehicle, without any intention, purely out of negligence or purely by accident, you may end up causing bodily harm, or financial harm or both to another person or property. Such an event leads to either a civil case or a criminal one depending on the nature of the act. The third-party-insurance protects you and it becomes a matter for the insurance company who has provided the cover to you. This is the main reason for this policy to exist, and as stated earlier it is a mandatory policy for every vehicle owner.

Kindly note that this cover on its own does not compensate you the owner for any of the damages. It covers the third party only. 

In order to provide compensation to the owner an add-on personal accident cover for the owner-driver is embedded in the third party policy. One can opt out of this, though it is not really worthwhile, because the amount involved is only Rs 200 which covers the owner-driver for Rs 2 Lakhs. Kindly note that this is not a substitute for an independent Personal Accident Policy, which is in effect 24 hrs a day world wide. This PA cover embedded with your car insurance is in effect only when you are in the car or getting in/ getting out of the car. These conditions are anyway covered in the independent PA policy, which as mentioned earlier has 24 hour cover.

Standard inclusions and exclusions are as follows: