There are primarily two types of covers when it comes to car insurance: these are own damages and third-party covers. Out of these, third-party insurance is made mandatory for all vehicles under the Motor Vehicles Act. These pay for damages caused to the third person by your vehicle in the event of an accident.
Under third-party claims, the maximum claim payout is restricted to just ₹7.5 lakh, if there is only damage to property. However, if the accident results in bodily injury or loss of life, then there is currently no cap on the amount that can be claimed.
Ideally, when someone rams into your car, resulting in huge repair bill, and with no fault of yours, then the cost should be borne by the driver at fault. But, that happens in rare cases. The reason being that to claim third-party insurance, the driver who is not at fault needs to take the erring driver to court and prove he’s guilty. Court trials can be a lengthy, costly and time-consuming affairs and hence very few people actually take this route.
Knock-for-Knock Agreement
So, what happens in the above case? Insurance companies acknowledge the tedious claim process associated with third-party claims. Hence, all non-life insurers in India have to, on an annual basis, sign an agreement with each other. Under its terms, they choose to pay for the damages if both parties have own-damage cover, rather than making use of the third-party cover of the driver at fault.
This agreement is called knock-for-knock agreement and has been created by the General Insurance Council. The dictionary definition is that it is an ‘agreement between vehicle insurance companies, in which each insurer pays for damages to the vehicle insured by it, without attempting to establish blame.’
Why is it Required?
As we all know, the process of filing third-party insurance claim is long and tedious with police and courts involved. This agreement is not mandated by law, but rather, is the result of an understanding between the insurers. This agreement is entered into to avoid the unnecessary delay that is encountered by dragging third-party claims to court.
What Impact it has on You?
This agreement between insurers is meant to avoid the delay that is associated with a court hearing, which can stretch into months and sometimes years. It also saves the concerned parties the frustration that is encountered while filing an FIR and obtaining a charge sheet from the police. Most importantly, it is meant to quickly cover expenses for the damage incurred without causing inconvenience to the customer.
This agreement is voluntary though and the customer can choose to go with third-party claims if he wants to. On the other hand, if the customer chooses to go with own-damage insurance (as part of this agreement) then he faces losing his no-claim bonus, even if the fault is not his.
Getting own damage motor insurance is always better, as it not only covers the third party expenses but also takes care of damage to your car in the event of an accident.