Third Party Beneficiary

AAA

DEFINITION of 'Third Party Beneficiary'

A person who will benefit from a contract made between two other parties. This third party beneficiary was not a party to the contract itself, but if the contract is fulfilled, the third party stands to realize a benefit. Under certain circumstances, the third party has legal rights to enforce the contract or share in its proceeds. For example, if they can prove that they were an intended beneficiary and not an incidental beneficiary.

INVESTOPEDIA EXPLAINS 'Third Party Beneficiary'

There are certain standards that need to be met for the third party beneficiary to have legal rights to enforce a contract or to share in the proceeds. For example, Mary agrees to buy a car as a gift for Katie. If the dealer (Bob) is notified and orders the car, but Marry refuses to go through with the contract, the dealer can sue for the damages. This is because Bob would be financially hurt, even though he is not a party of the contract. In terms of insurance policies, when an individual buys an insurance policy, a contract is formed between this individual and the insurance company, but a third party will receive the insurance payments. If the individual who bought the policy and whose name the policy is under passes away, the third party beneficiary has legal right to receive the insurance benefits and to sue either party if the insurance contract is not upheld.

RELATED TERMS
  1. Donee Beneficiary

    A person who is considered a non-party in a contract but still ...
  2. Privity

    A legal interpretation in contract law where contracts are only ...
  3. Primary Beneficiary

    A beneficiary in a will, trust or insurance policy that is first ...
  4. Secondary Beneficiary

    A person or entity that inherits assets under a will, trust or ...
  5. Designated Beneficiary

    The person who determines how long the retirement plan will survive ...
  6. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
Related Articles
  1. Designating A Trust As Retirement Beneficiary
    Retirement

    Designating A Trust As Retirement Beneficiary

  2. Disclaiming Inherited Plan Assets
    Retirement

    Disclaiming Inherited Plan Assets

  3. Variable Vs. Variable Universal Life ...
    Retirement

    Variable Vs. Variable Universal Life ...

  4. A Look At Single-Premium Life Insurance
    Home & Auto

    A Look At Single-Premium Life Insurance

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center