Even though liability insurance is a type of insurance itself, there are still many forms of insurance policies that come under the umbrella of liability insurance. One such policy is a compulsory third party insurance policy.
Table of Contents
- 1 What is a Third Party Insurance?
- 2 What does Compulsory Third Party Insurance Cover?
- 3 Why is it Compulsory?
- 4 Would you Need Comprehensive Insurance With Compulsory Third Party Insurance?
- 5 Who Receives the Compulsory Third Party Premiums?
- 6 How Can you Find Cheap Compulsory Third Party Insurance?
- 7 How to File a Compulsory Third Party Claim?
- 8 What Should be Done Now?
What is a Third Party Insurance?
A third party insurance policy is a form of liability insurance that protects the first party from any claims of damages and losses by the third party. The second party in this situation will be the insurers who sold the insurance coverage to the first party. The first party is responsible for the damages and losses even if the cause of those damages is different.
There are mainly two types of automobile liability coverage:
- Bodily injury liability which covers the cost of injuries to a person. These costs can include hospital and medical bills, lost wages and pain and suffering due to the accident, etc.
- Property damage liability which covers damages to or loss of property. Some property damage examples include the cost of replacing landscapes and mailboxes and the compensation amount for loss of use of structure.
Third party insurance basically serves as protection against the claims of someone else. Automobile insurance is one of the most common types of third party insurance which offers coverages against claims of losses and damages incurred by a driver. That driver should not be the insured party and hence, would not be covered by the insurance policy. However, the third party would be the driver who caused all the damage.
It is usually required by state laws that drivers carry at least a minimal amount of bodily injury liability as well as property damage liability coverage. However, there are some states that do not have the same requirements or have other limitations. There is a minimum requirement set for each type of coverage by every state.
Liability coverage is also essential in states that have a “no-fault” rule. These rules and laws were established mostly to reduce or eliminate ordinary injury lawsuits with low-dollar price tags that have an overwhelming number of claims resulting from pain and suffering. However, no-fault laws still do not protect the insured from any million dollar injury lawsuits that are filed by some seriously injured third parties.
Both types of third party insurance, bodily injury and property damage, can be important especially if you have a property or substantial assets to protect. The limit is higher for each type of liability coverage if the insured has money and assets.
In most countries, third party liability insurance is also a compulsory insurance for parties that have a likely chance of being sued by a third party.
Compulsory third party insurance, also known as the abbreviation, CTP insurance, is used to provide compensation and cover for people injured or killed by an accident.
As the name suggests, CTP insurance is compulsory in all states of America and you cannot register a vehicle without first buying CTP insurance. It is commonly included in your registration unlike NSW which has to be purchased as a separate step when you renew your registration.
CTP insurance does not provide coverage to vehicles, animals, buildings or any personal property that may be damaged. It is only coverage to protect the people.
The three parties involved in a CTP insurance claim are known as:
- First party who is the driver of the vehicle at-fault.
- Second party who is the general insurer that is providing the CTP insurance to the first party.
- Third party who is anyone that has been injured in the accident except for the driver. This third party can include anyone, from pedestrians, passengers in cars, cyclists or someone from the general public.
The name of the CTP insurer is typically noted on any registration renewal document and when you buy or sell your vehicle, the CTP insurance is automatically transferred to the new owner.
Although CTP insurance does not aim to undo the guilt for accidents, it can provide financial assistance for items like hospital and doctors’ fees, medication, physiotherapy, damages to the family if the driver passes away, legal expenses and loss of income. Some insurance companies even have the additional free benefit known as “At Fault Driver Protection” insurance.
Even though there are conditions applicable to compulsory third party insurance benefits, it is not a part of legislation. Instead it is a comfortable feature if the driver has been injured or deceased. Limits of these benefits can vary from insurance company to insurance company as every insurer is different and has different terms to offer.
In some states and territories, it is common for insurers to offer discounts for compulsory third party insurance because of the increased competition. There are deals available for people, such as, selecting comprehensive car insurance can also get you comprehensive motor or other domestic coverages.
However, it is essential to keep in mind with compulsory third party insurance that this sort of coverage is compulsory by law which means you cannot drive any vehicle on the road if it is not registered with valid CTP insurance. And the second thing to keep in mind is that this compulsory third party insurance does not cover the vehicle of the insured or cover any damage to another person’s vehicle or property. Compulsory third party insurance is solely for individuals who have been injured or killed in an accident. In order to buy coverage for your own vehicle or others’ vehicle or property, you would have to buy auto insurance.
What does Compulsory Third Party Insurance Cover?
Compulsory third party insurance coverage provides compensation for people that have been injured or killed in case your vehicle has been involved in an accident. The person driving the vehicle that caused the injury is indemnified against claims for the damage and losses that occurred.
Why is it Compulsory?
Third party insurance is compulsory so that the compensation for loss is not dependent on the driver that caused the loss and whether or not he/she is able to pay for the damages. It is not always guaranteed that individuals would be able to afford paying compensation especially if the injured party is entitled to a huge sum depending on the injuries or if someone has been killed. In cases like this, it is important to have compulsory third party insurance so that compensation is more readily available equally to all parties who are entitled to some form of compensation.
Would you Need Comprehensive Insurance With Compulsory Third Party Insurance?
It is common to confuse comprehensive insurance with compulsory third party insurance. However, the two are entirely different. Comprehensive insurance covers damage to property and vehicles. It is only applicable if the damage has been done by external factors that cannot be controlled. For example, trees falling on a car and damaging it, vandalism, theft, a run-in with a deer causing a dent on the car or damage to the vehicle because of natural events such as hailstorms, snowstorms, tornadoes, floods, etc. However, compulsory third party insurance covers injuries obtained by people and not damage to vehicles or property. It is the complete opposite. Which is why it does not mean you should not buy comprehensive insurance if you have compulsory third party insurance or vice versa. The two policies serve different purposes and are both important in order to have a secure future and make sure you save yourself from the financial strain of having to pay huge sums of money out of your own pocket that most people would not even have. Both of these policies are smart investment policies. If you feel like you are not at risk of either damaging your vehicle or property or even causing injury to someone else, you should still not completely forego the two policies. However, when there is less likelihood of events as such, you can choose to opt for higher deductibles which will lead to lower premiums. This way, you will have the satisfaction and peace of mind of having the policies in case you are in an accident but still would not be paying high amounts of money for something that is not likely to happen to you. In case it does happen to you and you are involved in an accident, you will be able to receive coverage from your insurance company under both, comprehensive and compulsory third party insurance policies. However, at the time of the accident, you will be required to pay a high amount out of your pocket as the deductible. A typically high deductible amount for these types of auto insurance policies is $1,000. If you can afford to pay a high amount of deductible like this all at once instead of gradually through the premiums then this option would be the most cost-effective way for you to obtain comprehensive and compulsory third party insurance both.
Who Receives the Compulsory Third Party Premiums?
The premiums for compulsory third party insurance policies are received by the insurance company that has underwritten your scheme. It is the same insurance company that will also pay the third party insurance claim settlement in the event of an accident and a third party is either injured or killed.
How Can you Find Cheap Compulsory Third Party Insurance?
Finding cheap compulsory third party insurance depends on the state you live in. There are some states where there is only one compulsory third party insurance underwriter and the compulsory third party premium is included in your car registration. However, in some states, there are multiple compulsory third party insurers which means you will be able to get market competitive rates. You just have to keep a lookout and explore various insurance companies and find out the rates and the policy terms they are offering.
It is not always wise to look for something that is cheap but to look for coverage that will suit your needs the best. It is common for people to mistakenly assume their coverage includes everything when that is not usually the case. Which is why it is best to shop for insurance policies according to the coverage they provide. And of course, how much they are going to cost you should be a close second so you can make the best decision possible.
We stress upon the importance of making a good decision when it comes to insurance because one bad call can lead to financial strain if you are not careful enough. It is also important to think about the future and keep in mind what price for premiums you would be able to pay if you did not have the job you have right now. Since the future is not certain, we have to make sure we avoid any risk that can arise in a few years.
How to File a Compulsory Third Party Claim?
The third party insurance claim procedure is fairly simple. All you need to do after an accident, regardless of whose fault it was, is contact your insurance agent and inform them of all the details. Once you have done that, your insurance agent will work with the other party’s insurance company on your behalf and help you file a third party claim.
After you have done that, insurance companies will determine whose fault the accident was. They do this with the help of state laws and details of the accident. Who is found at fault depends heavily on the kind of accident it is and how it occurred. So in order to avoid having to pay large sums of money in a compulsory third party claim when you are not even at fault, you should always work with your own insurance agent first so they can help you build a case that works well in your favor.
What Should be Done Now?
Now that you know what is compulsory third party insurance and under which circumstances it is needed, you are all ready to take your vehicle out on the road.
It is important to know all there is to insurance if you plan on getting it. Although we can provide all the general information, you should always talk to your insurance agent and find a coverage option that works the best for you and suits your needs. Every state has different laws which means the coverage options can vary significantly between insurance companies. It is important to read your policy agreement carefully so that you do not mistakenly assume you are being covered for something that is not included in your policy.