An Act Only Policy is the most basic form of motor insurance mandated by law under the Motor Vehicles Act, 1988. This policy provides legal liability coverage to the insured for any injury, death, or property damage caused to a third party due to an accident involving the insured’s vehicle.
This type of policy does not cover damage to the insured’s own vehicle or personal injuries to the policyholder. Its primary purpose is to ensure that third-party victims are compensated in the event of a mishap involving a vehicle.
Key Features:
- Mandatory by Law: It is compulsory for every motor vehicle owner in India to have at least an Act Only Policy.
- Third-Party Coverage: Covers liabilities towards third parties including bodily injuries, death, and damage to third-party property.
- Legal Compliance: Helps the vehicle owner comply with legal requirements under the Motor Vehicles Act.
- No Own Damage Cover: Does not provide any financial support for damages to the insured’s own vehicle.
- Affordability: Being a basic plan, the premium is generally lower than comprehensive policies.
Who Should Opt For It:
- Vehicle owners looking only for legal compliance without the need for extensive coverage.
- Fleet owners and commercial vehicle operators who already have internal risk management or self-insurance plans for own damages.
Real-World Example:
Suppose a delivery van owned by a small business accidentally collides with a pedestrian, causing injury. An Act Only Policy would cover the business’s legal liability to pay compensation to the injured pedestrian but wouldn’t pay for the repair of the van itself.
Limitations:
- No protection for the insured’s own vehicle.
- No add-on covers or customizations available.
- Limited scope of protection compared to comprehensive or bundled policies.
Why It Matters for Small Businesses:
For businesses operating vehicles, ensuring compliance with statutory insurance requirements through an Act Only Policy helps avoid legal penalties, while also offering financial protection against third-party claims. It’s often used as a cost-effective starting point for businesses before upgrading to wider coverage options.
