Third-party auto insurance is a type of insurance that protects the insured driver against losses they cause to someone else or their property.
Learn how third-party liability insurance works, the types of coverage it provides, whether you need it, and how to file to claim once you have it.
What Is Third-Party Auto Insurance?
Third-party auto insurance insures you against damages you cause to other people or their property. That is, if you're at fault for the damage done to someone else's person or property, your insurance will pay for it if you have third-party auto insurance.
- Alternate name: liability insurance
How Third-Party Auto Insurance Works
Third-party liability insurance is simple to understand once you grasp what the third party represents. When you refer to yourself, you're said to speak in the first person. Likewise. for car insurance, the person or organization purchasing car insurance coverage is the first party. The company you buy insurance from is the second party. If you're liable in an accident, you might hurt another person or damage their property, and that’s the third party in this situation.
For example, let's say that you're involved in a fender bender and are found to be at fault. Although no one gets hurt, there is damage to the bumper of the other driver's car. Fortunately, you have third-party auto insurance coverage, so your insurance will pay for the damage to the third party's car under the property damage liability coverage provided by the policy.
What Does Third-Party Auto Insurance Cover?
There are two types of liability insurance coverage:
- Property damage liability coverage: This type of coverage pays for the damage that you (or someone who drives your car with your consent) does to someone's else property. The earlier example of the fender bender and consequent bumper damage provides an example of a scenario in which this type of coverage kicks in, but property can refer to any structure that the at-fault driver's car hits, from lamp posts to buildings.
- Bodily damage liability coverage: This coverage pays for the crash-related injuries you inflict on someone in another car. For example, if your fender bender also caused the other driver whiplash, this type of coverage might kick in. If you live in a state with a no-fault insurance system, the third party's personal injury protection coverage pays for losses up to certain limits, and then the at-fault driver's bodily damage liability coverage pays for costs in excess of that limit. If you live in a state with a traditional tort insurance system, the at-fault driver's medical insurance payment will pay for their own injuries, and their bodily damage liability coverage will pay for injuries to the third party. This coverage will also pay for injuries to the insured if the insured isn't at fault.
Twelve states and Puerto Rico have no-fault laws. If you live in such a state, another driver can sue you for injuries for which you are at fault, but only under a set of conditions known as a threshold. The threshold is based on the injury severity and may take the form of a verbal threshold (in verbal terms) or a monetary threshold (a medical bill amount, for example).
Alternatives to Third-Party Auto Insurance
Any damage to you, your passengers, or your property won’t be covered by third-party coverage. To cover yourself, you'll need first-party coverage such as:
- Collision coverage: Collision coverage insures you against damages to your own vehicle in the event that your car hits a car or another structure (including potholes).
- Comprehensive coverage: This type of coverage insures you against non-collision-related losses to your car—for example, theft or damage caused by weather or other natural phenomena or vandalism.
- Personal injury protection coverage: This type of coverage pays your medical bills and those of other people in your car in the event of an accident.
- Uninsured motorist coverage: This coverage pays your bills if a driver with insufficient or no car insurance causes an accident.
Do I Need Third-Party Auto Insurance?
The majority of states require both property damage and bodily damage liability coverage at a minimum. Contrast this with collision and comprehensive coverage, which are typically optional, and personal injury protection and uninsured motorist coverage, which more states allow drivers to forgo.
In states that don't require minimum coverage, you may still need to get self-insured or provide evidence to the state that you would be able to pay for damages in the event of an accident.
The downside of going without third-party auto insurance even if it's legal to do so in your state is that you could be forced to spend a fortune if you cause a serious accident.
How Much Does Third-Party Auto Insurance Cost?
Nationwide, drivers paid an average of $611.12 in annual liability premiums in 2017, according to the latest available data from the National Association of Insurance Commissioners. But how much you pay for third-party insurance depends on various factors, notably your driving record, the number of miles you drive, and your location.
Those who drive safely, incur less mileage, and live in small towns or rural areas generally pay less. To reduce the price of your third-party auto insurance premiums further, bundle car and homeowners insurance and choose a policy with a higher deductible.
Requirements for Third-Party Auto Insurance
A basic auto insurance policy typically includes both property damage liability and bodily damage coverage. To secure one, obtain price quotes from multiple insurers; you'll typically need to supply information about your car, household, and the drivers to get a quote. You may also have to undergo a credit check.
Once you obtain third-party auto insurance, the claims process varies slightly depending on whether you caused or were the victim of an accident. In either case, at the scene of the accident, swap car insurance and contact information with the other person, contact your auto insurer, and if possible, file an accident report and and document as much information as possible about the accident. Photos will come in handy here.
The victim typically files a claim with the at-fault driver's insurer to draw on that driver's third-party auto insurance to help pay for losses. This means that if you caused the accident, the other party should file a third-party claim with your insurer. Your insurance bill may go up by a certain percentage as a result. If you're the one making the third-party claim because someone else is at fault, you'll need to file a claim with their insurance company. Their claims representative will ask you for information such as the at-fault driver’s name and policy number, an accident report, proof of the damage (photos, for example), and information about any bills related to the accident. If the insured is found to be at fault, the insurer will usually pay your claim.
- Third-party auto insurance, also known as liability insurance, is a type of car insurance that pays for losses you cause others.
- It offers two types of coverage: property damage liability coverage and bodily damage liability coverage. Most states require both types of coverage.
- Insurance premium costs are based largely on one's driving record, mileage, and location.
- The victim files a third-party claim with the other driver's insurer to draw on their third-party insurance coverage to help pay the claim.