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A third party liability cover is also known as ‘act only’ cover. It is a statutory requirement under the Indian Motor Vehicles Act. It is a third party cover because the beneficiary of the policy is someone else other than the two parties involved in the contract that is the car owner and the insurance company. This policy has no benefit for the insured but it covers the insured’s legal liability for death/disability of the third party damage to the property or third party loss.

Since it is mandatory to have third party cover, all non-life insurance companies are obligated to provide this cover. Luckily in India, automobile dealers arrange for comprehensive insurance cover while registering for a vehicle. As the third party insurance cover is mandatory, a comprehensive cover is an add-on which comes in handy for the car owner in case of financial losses, caused by damage or theft of the vehicle.

Generally, a comprehensive cover costs more than that of a stand-alone third party cover because damage claims are more likely than third party claims. Until recently the premium for third party insurance was calculated on the basis of a schedule of rates charted by the Tariff Advisory Committee, under IRDA, the insurance regulator. But IRDA has singled out the motor tariff. Now the compensation to the victim is mostly calculated by the earning capacity of the victim.

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