Third-party vehicle cover: what clients need to know

Comprehensive vehicle cover is obviously the best cover to have for your car, because, subject to various conditions and your prescribed excesses, it covers you for all losses in an accident, for theft, as well as for perils such as hail damage and fire. But it is also the most expensive type of cover.

Insurers offer lower levels of cover for your car that are more affordable – typically, these are limited to cover for third party, fire and theft, and third-party-only cover. 

These types of policies may be attractive to you especially if:

• you have an older, low-value vehicle, and it is paid off; and/or
• you don’t drive the car very often or very far.

For example, you may be retired with a 10-year-old car worth R20 000, and use it only to drive to your nearest shopping centre a couple of times a week.

If you do opt for limited cover, however, you need to know exactly what is covered and what is not. Importantly, third-party cover will protect you financially against the potentially crippling costs of causing damage to someone else’s vehicle, especially if it is an expensive model. 

Who is the third party?

The third party in an insurance claim is the person who has suffered a loss because of your actions and who lodges a claim against you; the first party is you, the person insured; and the second party is your insurance company, which is responsible for settling the claim. Rowland Ramalingam, head of specialist claims at Santam, says that the third party is anyone, apart from you, to whom you have caused damage. It extends beyond natural persons to juristic persons, such as businesses. In vehicle insurance, the third party is most likely to be the driver of the other car in an accident that you caused, or it may be a retailer, for example, if you drove your car through a shop window. Some policies, Ramalingam says, may exclude certain people in their definition of third party, such as members of your household. 

What does it not cover?

Third-party insurance does not cover your loss if you have an accident, says Ramalingam. In other words, any damage to your own car or other property of yours is not covered, and you would have to pay for it out of your own pocket. If the accident is not your fault, however, you can claim against the other party (see table).

Often, fault does not lie entirely with one party or the other. For example, even though fault may lie mostly with you – you reversed out of a driveway without looking, for example – the driver who crashed into you may also be partly to blame, by not taking evasive action. The insurer will apply the principles of Apportionment of Damages and pay out according to these principles. The apportionment of the damages will indicate the amount of damages payable in relation to the amount of fault rests on each of the two parties. 

What is the difference between what insurers cover and what the Road Accident Fund covers? 

Ramalingam says the Road Accident Fund (RAF) covers your liability in the case of a third party being injured – in other words, it covers personal injury to the other party, but not damage to material possessions such as his or her car. Your third-party insurance policy covers you for the other party’s material damage, but it extends to personal liability cover for an event outside South Africa. It will also cover you for an “emotional shock” claim against you by a party, who is not directly involved in the accident, something that is not covered by the RAF. 

Do third-party-only policies require less underwriting?

Your own car is not insured, so its value is not taken into account.  Most underwriting for a policy concerns the driver, and how much risk you, as the regular driver of the car, pose to the insurer. Ramalingam says the value of your vehicle is not important, but your age, driving style and claims history certainly are, and these will be taken into account in the calculation of your premium. 

Up to what amount am I insured?

Say your car is only worth R50 000, but you write off a car worth R100 000, Ramalingam says that you are fully covered for damage to the other vehicle, minus your excess, for which you are responsible. In this instance, the sum insured will depend on the limit of cover selected. 

This article is adapted from the Personal Finance’s ‘How to get the best out of your short-term insurance policy’ series.

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