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.
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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."
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.Source: www.investopedia.com