States require every vehicle owner to buy at least Liability coverage for the damages and injuries they may cause to other people. So, a policyholder (vehicle owner) initiates the contact, arranges the coverage and pays for it and therefore becomes the first party. The insurer provides the required policy and so is the second party in this contract between two sides. Even though they didn’t arrange or pay for it, other people can claim on this Liability coverage, which is often referred to as third party car insurance because it is arranged purely to compensate for others.
The whole idea behind states requiring Liability coverage as a condition for allowing people to drive cars on public roads is to provide compensation for other road users who may suffer injuries and losses due to actions of other drivers. So, every motorist must provide coverage for the benefit of others in case they may cause them harm.
Motorists are entitled to claim on third party liability auto insurance policies arranged by other drivers, who are found to be at fault in an accident. But they cannot claim on their own third party provisions because they are the first party. Some states require motorists to have their own such coverage before they can claim on other’s policies according to a rule called “no pay no play”.
Anyone who caused any damage or injury to others is responsible to pay for such losses in the eyes of the law. That is why a third party liability car insurance is there to compensate others on behalf of the policyholder so that they are made whole again, which releases the policyholder of any responsibility. However, they may often be seen as helping others and not the person who paid for it. This is a wrong perception of the matter.
Furthermore, any claim made against another driver’s policy and insurer is often called as a third party automobile insurance claim because it isn’t a claim on the policy a motorist took but on someone else’s. If they are successful and get the third party insurer to pay for their losses, they don’t have to pay deductibles and the claim doesn’t usually affect their rates in the future.
Third party vehicle insurance provides defense when a policyholder or insured driver is responsible for a vehicle accident. It usually comes with two main provisions.
- Bodily Injury Liability Coverage pays for other people’s medical bills, lost wages, consequential costs, including pain and suffering. It also pays for funeral expenses if the accident resulted in fatalities.
- Property Damage Liability Coverage pays for the costs relating to property, like repairs (or replacement) of vehicles and objects that belong to someone else. This doesn’t include own vehicle and personal property in automobiles.
This term is more popular outside the US. In the US, a third party vehicle insurance policy is usually referred to as Liability only coverage while some other countries like the UK often use the term to mean a policy with legally required minimum coverage only.
On top of Liability, vehicle owners (first party) can arrange coverage to protect their own interest, like the car insured and any personal injuries suffered by them and their families. They and their insurers are the only two sides in case of such coverage concerning their own losses and they can claim no matter whose fault it was.
Typically, most motorists arrange full coverage that comes with Liability, Collision and Comprehensive components. This way, they are protected in case someone else makes a claim against them and any claim they may have to make for their own losses. In other words, insurers (second party) pay for policyholders’ (first party) and others (third party) losses and injuries when there is a full coverage policy in effect and their policyholders are at fault for accidents.