Third-Party Insurance

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DEFINITION of 'Third-Party Insurance'

An insurance policy purchased for protection against the actions of another party. Third-party insurance is purchased by the insured (first party) from an insurance company (second party) for protection against another party's claims (third party).

INVESTOPEDIA EXPLAINS 'Third-Party Insurance'

Third-party automobile insurance is one of the more popular types of third-party insurance. Drivers are often required by their state to have adequate insurance coverage to ensure that damages resulting from an accident can be paid for. "Third-party" in the case of automotive insurance would be the driver of the other vehicle, since that person is not the first party (principal) in the insurance policy.

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