Why Is Comprehensive Car Insurance More Expensive Than Third-Party Insurance?

Posted on: Oct 10, 2022 | 3 Min | Written by: HDFC ERGO Team

Why Is Comprehensive Car Insurance More Expensive Than Third-Party Insurance?

When we get insurance done for our car, it can be for two reasons. First, it is a mandatory law, and driving a car without valid insurance is illegal and can cause trouble. The second reason is to ensure peace of mind that there will be no financial strain in case of damage. For the first reason, the answer is third party car insurance, but for the second one, you need comprehensive car insurance. The two are different in terms of coverage and, of course, the pricing as well. Comprehensive car insurance is more expensive than the third party, and the main reason is the difference in coverage. Let us first understand the two coverage, their difference, and then why comprehensive insurance is more expensive than third party policy.

What is comprehensive car insurance?

Comprehensive car insurance is a policy that offers extensive coverage as it covers own damage and also third party liability. This policy is not mandatory under the Motor Vehicles Act, 1988 or any other law, but is or rather should be the preferred choice for any car owner because of its enhanced coverage. Any damage to the vehicle due to theft, accident, manmade calamities, natural calamities like cyclones and floods, and fire will be covered under the comprehensive insurance policy. There are options of add-on covers that can be taken in a comprehensive plan to make the coverage better.

What is third-party car insurance?

The second kind of insurance that can be bought for a car is third party car insurance. This is mandatory under the Motor Vehicles Act, 1988. This policy basically takes care of any damage, death, and injury to a third party caused by the car. This is compulsory and the most basic insurance and does not take care of any damage caused to the vehicle. Any legal and financial assistance in case of any injury or damage to a third party will be taken care of by this policy.

5 reasons why is comprehensive car insurance more expensive than third-party policy?

Though comprehensive car insurance is better for any car owner, it is more expensive, and thus, many car owners avoid taking it. Though the premium is higher, it is a justifiable cost, and you only realise the importance when there is damage, and the cost of repair becomes the responsibility of the insurance company. Let us list some reasons which make a comprehensive car insurance policy more expensive than a third party policy.

Coverage

The first and foremost reason why the comprehensive policy is more expensive than a third party liability cover is because of the coverage it offers. As discussed above, the third party liability will only pay for damage, injury, or death to a third party. Whereas a comprehensive insurance policy will not only cover the third party liability but also pay for any damage to the car because of any of the covered perils. As the cost of repair will be taken care of in this policy, it is better and more expensive.

Add-on Covers

A third party liability car insurance policy is a standard policy, and there is not much deviation possible. Whereas in the case of a comprehensive policy, there are options to take add-on covers as per the needs. This makes the policy more customisable and also improves coverage. With options to add and remove and the main inclusions and exclusions make the policy better and also more expensive.

Make and Model of Car

A third party car insurance policy is a standard policy and there is no deviation in the policy due to any factor. Whereas, in the case of a comprehensive policy, the make and model of the car impact the insurance coverage. The more expensive the car, the more expensive will be the insurance premium. The main reason behind this is that the repair and replacement cost of parts of expensive and luxury cars is high, and this is what impacts the premium.

Includes Third Party liability cover

As the coverage of a comprehensive policy also includes the coverage of a third party liability policy, it is bound to be more expensive. The former includes the coverage of own damage cover and also of the third party liability. As the policy includes a cover of two policies, it is more expensive and also a good choice to insure the car.

Age of Car and City

The car's age and the city in which it is driven will impact the premium of the car. All these factors affect the calculation of the premium and thus, this becomes one of the main reasons why the policy is more expensive. Comprehensive insurance depends on various factors and each of these makes the policy expensive or cheaper but definitely more expensive than the third-party policy.

What insurance cover is right for you?

If you are confused about which insurance cover is right for you, the answer is comprehensive car insurance. The main aim of buying insurance is to avoid any financial strain in case of an accident or theft, or any damage to the car. This is only possible when you buy a comprehensive policy, as a third party liability policy will only cover any loss to a third party. The main reasons why you should buy a comprehensive cover are:

● The policy covers its own damage.

● The policy covers third party cover, which is mandatory by law

● You have the option to choose your insured declared value which will affect the premium. Although, you must remember the coverage will also change with the IDV, especially in the case of a total loss

● You always have the flexibility to go back to a third party policy or change your coverage, making it a flexible option

Conclusion

The debate between comprehensive car insurance and third party car insurance is an old one, but it still manages to confuse a person buying car insurance for the first time. The coverage is different, and so is the premium. Though a comprehensive policy is more expensive than a third party one, it has better coverage which is what you need in times of a problem. The reason for the expensive premium is justifiable, but the decision to take a comprehensive or third party is the decision of the insured. Keep the pros and cons of both in mind and do not only look at the premium and then take a smart decision that suits your needs and requirements.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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