Do you think auto insurance is necessary in the scheme of things or do you buy it only because it is a legal requirement? If you hold the latter view, it is likely that you favor buying third party car insurance which is a legal minimum requirement and typically cheaper to buy than comprehensive car insurance. Dealers and agents may recommend buying a comprehensive policy rather than a basic policy however this may not always be indicated. Read on to know about the limitations of both types of insurance and then make up your mind whether the extra cost of a comprehensive policy is justified. So comparing Comprehensive and Third Party Insurance here:
What is third party car insurance?
Third party auto insurance pays for damage to the other person involved in an accident wherein you the policyholder are at fault. The policy will not pay for injuries that you or others in your vehicle may have sustained, nor does it pay to repair the damage done to your vehicle. Third party car insurance will also not pay for damage your vehicle may sustain while it is parked: a hit and run or a fallen tree branch for instance.
Buying this type of insurance is compulsory for vehicle owners. If found operating a vehicle without insurance, the person may be liable to fine, confiscation of license and/or other punishment that the law may mandate.
What is comprehensive car insurance?
Comprehensive auto insurance is not a legal requirement, however it is recommended for those who want more comprehensive coverage. Comprehensive car insurance is more expensive than a basic third party policy; however it offers a wider umbrella of protection as well. If your vehicle is in an accident the policy will pay for injuries and damage sustained to your vehicle as well. The comprehensive policy will pay for damage caused by another vehicle or animal, falling objects, vandalism, riot, flood, fire natural calamity, glass breakage. It will also pay in the event of your vehicle being stolen (up to the IDV or insured declared value of the vehicle). In other words, a comprehensive policy will also pay for damage or loss incurred at times other than a road accident. By contrast third party car insurance will pay only for damage that is a result of a road mishap.
It is however important to remember that comprehensive car insurance also has its limitations. The perceived value of a vehicle goes down each successive year of its life (depreciation). Hence the extent of total coverage offered also diminishes to that extent. Comprehensive policies do not cover repairs that arise out of regular wear and tear that a vehicle undergoes. Mechanical or electrical breakdowns and tire/tube replacements needed in the due course will also not be covered. Further a certain percentage of expenses incurred have to be borne by the policyholder; unless the vehicle owner has bumper to bumper or zero depreciation insurance (in which case the insurance company will bear 100% expenses).
Is the extra cost of comprehensive car insurance justified?
In most cases, a comprehensive plan is better than third party car insurance because it offers wider coverage and superior protection. Experts recommend this type of insurance for new and high end vehicles. However, experts feel that a comprehensive policy is an unnecessary expense for older vehicles, where the reduced value of the vehicle does not to justify the extra expense.
In most cases people don’t mind the extra expense of a comprehensive plan because of the peace of mind that the extra protection comprehensive car insurance provides. However, in the end it has to be the choice of the vehicle owner whether to buy a third party insurance or a comprehensive policy.