Understanding Third-Party Insurance
Third-party insurance is rarely purchased alone. In most cases, it is a part of an insurance policy. This includes home insurance, car insurance, and so on. However, tackling and understanding all the legal terms and their implications can be a bit overwhelming.
This is why we decided to break down third-party insurance and explain it in layman’s terms. Here are the most important things you should know about third-party insurance.
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What is Third-Party Insurance
Third-party insurance is a policy commonly found in insurance policy plans. It is designed to protect a bearer from the claims of another. This is why you can commonly find it by another name – third-party liability insurance. In other words, it is a form of liability insurance.
While some insurance policies do include it and others don’t, you will probably see third-party insurance in your automobile insurance policy. It is there to ensure that a bearer will get compensated even if a person responsible for the damages caused to a driver and other vehicle doesn't carry any insurance policy.
In this instance, the driver who is not insured and who is responsible for the damages is the third party.
Essentials of Third-Party Insurance
When people talk about insurance policies, they usually get confused about who is the first, second, and third party. Let us help you with this:
- The first party – this is basically you. A person who purchased third-party insurance is the first party. If you carefully read the insurance policy, you will be able to find the clause that clearly states that regardless of the cause of damages, the first party is always responsible for their losses and damages.
- The second party – this is the insurance company you purchase the security policy from.
- The third party – anyone who make claims against the first party.
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Two Types of Third-Party Insurance
Two types of third-party insurance are:
- Bodily injury liability insurance – this insurance is designed to protect the policy carrier and cover costs resulting from injuries to a third-party (lost wages, medical care, pain and suffering caused by the accident)
- Property damage liability insurance – this insurance is there to cover costs resulting from damages to or loss of property of the third-party.
Why Invest in Third-Party Insurance?
Many areas require drivers to carry third-party liability insurance. Some require them even to have both property damage and bodily injury liability coverages.
A third-party insurance policy is an investment that will protect you from third-party claims, but also cover a significant portion of a lawsuit if the third-party actually sustains serious injuries or property damage. Please note that although similar, no-fault insurance is a separate type of insurance.
Overall, third-party insurance is a type of liability insurance found as part of automobile and home insurance policies. It encompasses both bodily injury and property damage liability insurance. In most places, it is required by law, and its primary purpose is to protect you from claims of third parties.
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