What Is Third-Party Liability?

Third-party insurance covers claims against the policy holder by someone other than the insurance company. The policyholder is the first party, the insurance company is the second party and the third party is someone that the policy holder may be involved in a dispute with.

When it comes to car insurance, the third party is likely to be someone the policyholder has an accident with. If that happens and the thirdparty blames the policyholder, he or she needs insurance to cover any court, medical or damage costs. Each insurance policy has limits placed on body injury liability and property damage liability. Body injury liability covers medical expenses, lost wages and pain and suffering. Property damage liability covers the cost of damage to property, such as cars, telephone poles or buildings. These limits are the maximum that the insurance company will pay out for.

If the policyholder has a high number of assets or income to protect, it may be worth paying extra to buy extra liability cover. Third-party liability insurance is there to help stop policyholders from losing savings, assets, homes and even future earnings. It is a legal requirement in most U.S. states, and even in states that have no-fault rules, it could protect the policyholder from losing everything that they own.