What You Need to Know About Third-Party Car Insurance

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Man and woman discussing their cars that crashed into each other

Third-party insurance is a type of liability insurance. Auto insurance is one of the most common types of third-party insurance, where a person purchases a policy from their insurance company to protect them against claims from a third party. 

In this guide, we’ll cover how third-party car insurance works and how much coverage you need. If you’re currently shopping around for new auto insurance, get started by entering your ZIP code below:


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What Is Third-Party Car Insurance?

Third-party liability insurance protects customers against financial risk if an insurance claim is filed against them due to injuries or property damage. A few common third-party liability insurance policies include commercial liability insurance, homeowners insurance, and auto insurance.

In the case of auto insurance, third-party insurance takes two main forms: personal injury liability insurance and property damage liability insurance. The former type of insurance covers drivers against claims and pays for medical bills if the insured injures someone else. The latter protects drivers if they damage someone else’s property, like their car.

The name “third party” refers to the three parties involved in the insurance policy: the insured (first party), the insurance company (second party), and the person filing a claim against the insured (third party).

Why Do You Need Third-Party Liability Insurance?

Car accidents can happen, even if you’re a cautious driver. In most cases, if you cause property damage or bodily injury to another person, it may be difficult to cover those costs out of pocket without insurance. That’s where third-party liability insurance comes in: If someone else files a claim against you, your insurance policy can walk you through the claims process and help you to cover the cost.

Plus, you are almost always required to carry liability insurance whether you live in a no-fault or at-fault state. Different states have different minimum insurance coverage requirements for property damage liability insurance and bodily injury liability insurance. Still, you’re typically required to include both types of coverage as a part of your auto insurance policy.

Other types of insurance policies that may include third-party liability insurance include commercial liability insurance and homeowners insurance. Similar to auto insurance, these policies protect the insured and help them to pay for medical bills or related costs if someone is injured while on the policyholder’s property.

Common Types of Third-Party Car Insurance

Person taking a photo of 2 cars that crashed into each other

Auto insurance, homeowners insurance, and commercial liability insurance are all types of third-party insurance.

Commercial Liability Coverage

Commercial liability coverage is a policy for business owners that protects against bodily injury and property damage claims made by non-employees (like customers or clients). This type of coverage is specifically designed to protect small business owners against unexpected risks.

Commercial liability can cover the cost of a claim investigation and defend against lawsuits. It can also cover witness fees, court costs, attorney fees, judgments ordered by the court, and settlements.

Homeowners Insurance

Homeowners insurance usually comes packaged with the option for third-party liability coverage that protects against incidents that happen on your property.

No matter how responsible you are, some accidents may be outside your control. For example, someone might fall and injure themselves while visiting your property. In this case, homeowners insurance with third-party insurance coverage would cover medical bills or other related costs if someone is hurt.

Auto Insurance Liability Coverage

If you want to operate a vehicle legally, almost all states require that you purchase a car insurance policy. Car crashes happen every day — and vehicle repairs can be expensive — so mandated car insurance coverage makes sense. Third-party liability coverage for car insurance policies includes both personal injury liability and property damage liability.

Personal injury liability protection covers injuries and medical bills for the other party if you get into an accident. Drivers must typically purchase a coverage amount per person, which specifies the maximum amount covered for each individual involved in an accident. It also indicates a coverage amount per accident, which caps the amount that an insurance company will pay out for a specific accident, regardless of how many people are involved.

Drivers must also set a limit per accident for property damage liability coverage. A common rule of thumb is to purchase $100,000 per person and $300,000 per accident in personal injury liability, and $100,000 per accident in property damage coverage. Your insurance cost may differ between insurance providers, so it’s a good idea to compare car insurance prices and shop around before purchasing a policy.

Other Types of Auto Insurance

Third-party car insurance in the form of personal injury liability car insurance and property damage liability insurance is generally the most important part of your auto insurance policy — and it’s required in almost all states. But, depending on where you live, several other types of auto insurance coverage may be necessary to operate your vehicle legally. Plus, you may want to consider purchasing optional coverage for greater financial protection in the event of an accident. 

Other coverage types to consider include:

  • Personal injury protection (PIP): This type of car insurance is required in some states, and covers medical bills after an accident, whether or not you’re at fault.
  • Underinsured or uninsured motorist coverage (UM/UIM): This type of coverage is required in some states and protects you from financial risk if you get into an accident with a driver who is underinsured or uninsured.
  • Comprehensive coverage: Comprehensive insurance coverage is usually optional and provides coverage if your vehicle is damaged for non-collision reasons, like theft or a natural disaster.
  • Collision coverage: Collision insurance coverage is also usually optional and covers damage to your own vehicle if you get into an accident.

Comparing Car Insurance Quotes

 

Woman holding her car key while sitting inside her car

Comparing car insurance is one of the easiest ways to save on your policy. It’s a good idea to note the cost difference for each type of liability coverage. If two providers seem to offer an equal cost, that may change when you increase your coverage amounts.

Notice Different Deductibles and Coverage Limits

You may find that different car insurance companies offer different deductible amounts for comprehensive coverage. Some provide the standard $50, $100, $150, or $200, while other companies might offer $350 as their lowest deductible.

Before buying any policy, you’ll want to check your coverage limits and deductibles. Sometimes, having a policy with low limits and high deductibles doesn’t provide much more benefit than no coverage.

For example, let’s say you have comprehensive coverage with your car insurance policy and a deductible of $5,000. The only way that policy will benefit you is if someone does more than $5,000 in damage to your vehicle.

Get Comprehensive Coverage

Comprehensive covers damage to your vehicle when it’s not in an accident, like vandalism, theft, or natural disasters. Comprehensive coverage is usually optional, but it’s generally a low-cost way to secure additional protection for your car.

Compare Today and Save

Compare.com makes it easy for you to find affordable third-party liability insurance. Some car insurance companies even offer discounts for good drivers, students, and multiple vehicles.

Start comparing car insurance quotes today to see how much you can save on your policy.


 

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