What Is Third-Party Insurance?

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

Key Takeaways

  • Third-party insurance covers an individual or firm against a loss caused by some third-party.
  • An example is automobile insurance that will indemnify the insured if another driver causes damage to the insured's car.
  • The two main categories of third-party insurance are liability coverage and property damage coverage.
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Third-Party Insurance

Understanding Third-Party Insurance

Third-party insurance is essentially a form of liability insurance. The first party is responsible for their damages or losses, regardless of the cause of those damages. One of the most common types is third-party insurance is automobile insurance. Third-party offers coverage against claims of damages and losses incurred by a driver who is not the insured, the principal, and is therefore not covered under the insurance policy. The driver who caused damages is the third party.

There are two types of automobile third-party liability coverage:

  1. Bodily injury liability covers costs resulting from injuries to a person. These injuries' costs could include expenses like hospital care, lost wages, and pain and suffering due to the accident.
  2. Property damage liability covers costs resulting from damages to or loss of property. Examples of property damage include the payment to replace landscaping and mailboxes, as well as compensation for loss of use of a structure.

As required by law, drivers must carry at least a minimal amount of bodily injury liability and property damage liability coverage. A few states do not require both or have other limitations. Each state sets its minimum requirement for each type of coverage.

Even in “no-fault” states, liability coverage is all but essential. No-fault laws were established to reduce or eliminate ordinary injury lawsuits affixed with low-dollar price tags and an overwhelming number of 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, such as homeowners, with substantial assets to protect. The more money and assets an insured has, the higher the limit should be for each type of liability coverage.

In most countries, third-party or liability insurance is compulsory 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 may affect third parties, such as subcontractors, architects, and engineers. Here, the third-party can be visitors, guests, or users of a facility. 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.

Frequently Asked Questions

What Is the Significance of Third Party Insurance?

The significance of third-party insurance lies in the fact that it offers the insured coverage against claims of damages and losses incurred by the uninsured who was responsible for the damages. It is essentially a form of liability insurance. Normally, the insured party is responsible for their damages or losses, regardless of who caused those damages. Third part insurance is a policy purchased by the insured (first party) from the insurance company (second party) for protection against the claims of another (third party).

What Are the Types of Third Party Automobile Insurance?

There are two types of automobile third-party liability coverage: bodily injury liability and property damage liability. Bodily injury liability covers costs resulting from injuries to a person. These injuries' costs could include expenses like hospital care, lost wages, and pain and suffering due to the accident. Property damage liability covers costs resulting from damages to or loss of property. Examples of property damage include the payment to replace landscaping and mailboxes, as well as compensation for loss of use of a structure.

What Are Other Types of Third-Party Liability Insurance?

Public liability insurance involves industries or businesses that take part in processes or other activities that may affect third parties, such as subcontractors, architects, and engineers. Here, the third-party can be visitors, guests, or users of a facility. 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.