Two recent parallel developments make not buying insurance for your car very tricky.
One, in case you are unable to pay damages in case of an accident – because you have not bought Third Party Insurance policy – authorities can seize and sell your car to pay the due damage.
And two, the Supreme Court has increased the mandatory cover requirements for third party insurance from Rs 2 lakh to Rs 15 lakh.
Why you could lose your car
The first is a result of a judgement The judgment was delivered in a case in which the victim’s family demanded compensation when an uninsured vehicle hit the victim led to his death. In response, The Motor Vehicle Act Tribunal declined to pay up saying the vehicle was uninsured.
The judgment asked states to follow the State of Delhi example which states,”no court shall release a motor vehicle involved in an accident resulting in death or bodily injury or damage to property, when such vehicle is against third party risks unless and until the registered owner furnishes sufficient security to the satisfaction of the court to pay compensation that may be awarded in a claim case arising out of such accident.” Simply put, unless the owner of the vehicle that caused the accident deposits money equal to likely damage award, the vehicle will not be released.
Further, the court mandates, “that the motor vehicle be sold off in a public auction by the magistrate having jurisdiction over the area where accident occurred, on expiry of three months of the vehicle being taken in possession and proceeds shall be deposited with the Claims Tribunal having jurisdiction over the area in question, within 15 days for the purpose of satisfying the compensation that may have been awarded, or may be awarded in a claim case arising out of such accident.”
Now all this wouldn’t matter if the damages awarded were paltry. And that has been the case till recently.
However, another Supreme Court directive is likely to change that. The fact that Supreme Court has raised the cover substantially—from Rs 2 lakh to Rs. 15 lakh–suggests the apex court is not happy with the compensation awarded to victims. So expect damages to be much higher in the future. For example, in case of death – admittedly an extreme event – the payout has been pegged at 15 lakh.
But Doesn’t Every Car Owner Have Insurance
No. According to industry estimates only one out of three cars on Indian roads is insured. That despite the fact that the law makes Third Party insurance mandatory. Till now, the penalty for not complying with the law has been rather lame: suspension of your driving license and car registration and a cash penalty of just Rs. 1,000.
So if you found yourself on the wrong side of law, you could always buy insurance, pay the penalty and get your license and registration reinstated. Or you could just, you know do what, and drive away. Basically lots of nuisance but very little financial damage for breaking the law.
So I Need Third-Party Insurance Only
Legally yes— third-party insurance covers damages that you might cause to another person, his car or property in case of an accident.
Not buying this policy is not merely risky but foolish considering it is so cheap—just Rs 700-800 for the now-mandated Rs. 15 lakh cover.
The case for Comprehensive Insurance
However, third-party insurance does not cover the damage that an accident might cause to your car or yourself. The latter comes under Own Damage (OD) Insurance. We advise you buy Comprehensive Insurance which combines third party and own damage insurance.
Comprehensive Insurance costs more—most of the premium you pay when buying this policy goes towards OD insurance.
But it’s well worth price. Consider this: average claim amount, as per a recent policybazaar research is around Rs. 19,000. This would mean that average bill for damage to your car will be in the range of Rs 22,000-Rs 25,000 [as most insurance policies do not cover all parts] . Comprehensive insurance for most cars up to 12 lakh cost far less than that. And you get covered for theft as well as personal injury.
And finally, following rules is just the right thing to do.