Third-party liability cover protects you against claims by accident victims.

Insuring your vehicle is important because in case of an accident, the insurance company picks up the bill for repairs.

What few people know is that the insurance company also compensates victims of accidents in which the insured vehicle is involved. This compensation can run into several lakhs of rupees and has on occasions even touched the nine figure mark. In 2002, a court awarded `12 crore to the family of an NRI doctor killed in an accident.Even if he sells everything he owns, the average Indian driver will not be able to pay such a huge amount.

The good news is that this thirdparty liability insurance is mandatory for all vehicles and offers unlimited cover for injuries and death caused by the vehicle. Third-party premiums were hiked in April this year but are still low (see table). For `2,000 a year, the owner of a midsized car is fully protected against claims by victims.

Some owners avoid buying insurance when their vehicle is very old. This can be a costly mistake.Even if you don't want to insure your old vehicle against theft or damage, don't miss paying the third-party liability premium.

Incidentally, general insurance companies have been lobbying for a cap on the liability for several years. They contend they are losing money on third-party insurance because the compensation is higher than the premium earned.They want that the insurance company should be liable to pay a maximum compensation of `1 lakh in case of injuries and disability and `10 lakh in case of death. If the owner wants a higher cover, he should pay a higher premium.

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