Third-Party Liability Insurance Coverage

4 min read | Updated on July 16, 2025, 14:32 IST

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When it comes to motor vehicle insurance, there is often a mandatory requirement of insurance as per the Motor Vehicle Act, 1988. Many people comply with the mandatory requirement and opt for third-party liability insurance coverage. By taking up this coverage, anyone can drive legally on the Indian roads, as this is the bare minimum requirement.

This is an excellent insurance tool because it helps cover damages to third parties, compensation, and legal fees if your vehicle is involved in an accident. However, it does not cover anything beyond the third-party (and legal) compensation. So, if you expect that it will cover any repair costs or the insurance company would compensate you in any manner in case of theft or complete damage to your vehicle, you need comprehensive cover.

Let us find out more about third-party liability insurance coverage.

What Is Third-Party Liability Insurance?

Let us understand the basics first. Third-party liability insurance is a type of motor insurance that covers the legal and financial liabilities arising from injuries or damages caused to a third party by the insured vehicle. As per the MV Act, every vehicle in India must have at least this coverage.

Let us understand what is meant by the term ‘third-party’ here. It refers to any individual or entity, apart from the policyholder and the insurer, that is affected by the insured vehicle. Some common examples of third parties who can be part of an accident include pedestrians, passengers in another vehicle, or property belonging to someone else.

What Does Third-Party Insurance Cover?

Here is what is included in a third-party motor vehicle insurance cover. Broadly, it takes into account bodily injury or death of a third party, damage to property and legal liabilities arising out of an accident involving your vehicle.

Bodily Injury or Death of a Third Party

If your vehicle causes an accident that injures or kills another person (driver, pedestrian, or passenger), the insurance covers medical expenses, legal liabilities, or compensation as directed by the Motor Accident Claims Tribunal (MACT).

Property Damage

The policy compensates for damage to someone else’s property, like another vehicle, boundary wall, or shop. The standard limit for property damage is ₹7.5 lakh.

Legal Liabilities

This includes the costs of legal proceedings, compensation awards, and settlements related to third-party claims.

However, it does not cover any damages if you or your vehicle is damaged in the accident. The coverage is exclusive to the third parties involved only.

How Does It Work?

Let us understand how third-party liability insurance works:

Accident Occurs

Your vehicle causes injury, death, or property damage to a third party.

Filing an FIR

An FIR must be lodged at the nearest police station, which becomes a key document in the claims process.

Legal Process Initiated

The third party or their legal representative approaches the Motor Accident Claims Tribunal (MACT) to seek compensation.

Tribunal Assessment

MACT evaluates the case and determines the compensation amount.

Insurer’s Role

Once the tribunal passes a judgment, your insurer pays the awarded compensation directly to the third party, within policy limits.

No Out-of-Pocket Burden

You are legally and financially protected, as your insurer assumes the liability.

Who Should Buy It?

Everyone needs third-party liability insurance because it is the minimum legal requirement as per the MV Act. In the absence of a valid third-party liability insurance, you cannot legally drive in India. Therefore, regardless of your vehicle type, usage, driving experience, and preferences, purchasing third-party insurance is mandatory.

Difference Between Third Party and Comprehensive Insurance

Here is a table that describes the differences between the two common forms of motor vehicle insurance:

Feature	Third Party Insurance	Comprehensive Insurance
Coverage	Only third-party injury/property	Includes third-party + own damage
Legal Requirement	Mandatory	Optional
Premium Cost	Lower	Higher
Own Vehicle Protection	Not covered	Fully covered
Add-On Options	Not available	Multiple add-ons available

Summing up

Third-party liability insurance is not just a legal formality; it’s a fundamental layer of protection for every vehicle owner. While it doesn’t cover your own damages, it ensures that others affected by your vehicle are compensated fairly. Affordable and essential, it promotes responsible driving and keeps you shielded from the financial fallout of unforeseen accidents.

FAQs

What is third‑party liability insurance?

Third‑party liability insurance (also called liability insurance) protects you if you're legally responsible for injury or property damage to someone else or their belongings.

Who is considered a "third party" under this insurance?

A "third party" is anyone other than the insured and insurer, such as another driver, pedestrian, passenger, or property owner, who is affected by your vehicle.

Does third‑party liability insurance cover damage to my own vehicle?

No, it only covers injuries to others or damage to their property and does not include any repair costs for your own vehicle.

Why is third‑party liability insurance required by law?

It is legally mandated so that victims of accidents caused by your vehicle are guaranteed compensation for their injuries or losses, even if the at-fault driver isn’t personally able to pay.

What expenses are covered under third‑party claims?

It typically covers medical bills, legal fees, court-ordered compensation, and repair costs resulting from third-party injuries or property damage.

About Author

Upstox Desk

Team of expert writers dedicated to providing insightful and comprehensive coverage on stock markets, economic trends, commodities, business developments, and personal finance. With a passion for delivering valuable information, the team strives to keep readers informed about the latest trends and developments in the financial world.