Third-Party Insurance

Loading the player...

What is 'Third-Party Insurance'

Third-party insurance is a policy that protects against the actions of another party. One of the most common types is third-party automobile insurance, which offers insurance coverage that protects against claims of damages or losses incurred by a driver who is not the insured, the principal, and is not covered in the insurance policy. The driver who caused damages is the third party.

BREAKING DOWN 'Third-Party Insurance'

Third-party insurance is essentially a form of liability insurance purchased by the insured, the first party, and issued by an insurer, the second party, for protection against the claims of another, the third party. The first party is responsible for its own damages or losses, no matter how they were caused.

There are two kinds of third-party liability insurance coverage in regard to automobile insurance. Bodily injury liability covers costs in regard to people. This includes medical expenses incurred, such as a hospital bill; lost wages; and pain and suffering. Property damage liability covers costs related to property or "stuff."

Importance

Anyone who drives is required by law to carry at least a minimal amount of both of these types of liability coverage, with the exception of a few states. Each state has its own minimum requirement for each type of coverage. Even in “no-fault” states, liability coverage is all but essential. No-fault laws were established to clear courtrooms filled to the brim with ordinary injury lawsuits affixed with low-dollar price tags as well as nearly all claims for “pain and suffering.” Still, no-fault laws do not protect the insured from million-dollar injury lawsuits stemming from seriously injured third parties. Both types of third-party insurance are important, specifically for individuals with substantial assets to protect. The more money and other assets an insured individual has, the higher the limit should be for each type of liability coverage.

Other Types of Third-Party Liability Insurance

In most countries, third-party or liability insurance is a compulsory form of insurance for any party that may potentially be sued by a third party. Public liability insurance involves industries or businesses that take part in processes or other activities that affect third parties, such as subcontractors, visitors or other members of the public. Most companies include public liability insurance in their insurance portfolio to protect against damage to property or personal injury.

Product liability insurance is typically mandated by legislation, the scale of which varies by country and often varies by industry. This type of insurance covers all major product classes and types, including chemicals, agricultural products and recreational equipment, and protects companies against lawsuits over products or components that cause damage or injury.

RELATED TERMS
  1. Liability Insurance

    Any type of insurance policy that protects an individual or business ...
  2. As Their Interests May Appear (ATIMA)

    Text in an insurance policy that allows other parties to be added ...
  3. Automobile Liability Insurance

    Financial protection for a driver who, while operating a vehicle, ...
  4. Aggregate Limit Of Liability

    The most an insurer can be obligated to pay to an insured party ...
  5. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  6. Cross Liability Coverage

    An endorsement that provides coverage for insurance policies ...
Related Articles
  1. Personal Finance

    Understanding Your Third-Party Insurance Policy

    Third-party insurance protects a party from the claims of another.
  2. Trading

    Intro To Insurance: Conclusion

    By Cathy ParetoInsurance is an integral part of any personal financial plan. The type of insurance and the amount of coverage you obtain all depends on your unique financial and family circumstances, ...
  3. Personal Finance

    Filling The Gaps In General Liability Insurance

    Standard liability coverage may not be enough. Special needs call for specialized policies.
  4. Financial Advisor

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  5. Personal Finance

    Cover Your Company With Liability Insurance

    Every business is susceptible to legal action. Find out how to protect yours.
  6. Investing

    The Industry Handbook: The Insurance Industry

    As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past decade. In the simplest terms, insurance of ...
  7. Trading

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  8. Personal Finance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
  9. Personal Finance

    Intro To Insurance: Other Insurance Policies

    By Cathy ParetoThe list of insurance products is not limited to health, life, or property protection; in fact, there are many other risk management solutions available in other forms of insurance ...
  10. Personal Finance

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
RELATED FAQS
  1. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  2. What are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  3. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
  4. How does the insurance sector work?

    Learn more about the insurance sector, a historically safe place for equity investors and the home of some of the largest ... Read Answer >>
  5. What are some examples of when insurance bundling is a bad idea?

    Learn about situations where insurance bundling may not be a favorable option. Bundling insurance is often a good idea, but ... Read Answer >>
  6. Can you sue an insurance company for not paying a claim over a waiver of subrogation ...

    Learn more about insurance and why waivers of subrogation are common with property insurance. Find out about liability risk ... Read Answer >>
Trading Center