Accidents and injuries are an inescapable part of everyday life. Many people will deal with some type of property damage at some point as well. In all those cases, one of the most common responses is litigation. Whether you are the one who decides to file a claim, or you end up on the other side as a recipient of a claim, the truth is that everyone can be faced with a lawsuit.
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Consider, for example, a car accident. If you happen to get into an accident, you act as the first party, with the insurance company acting as the second party. The third party in this scenario is the driver who decides to file a claim against you for any injuries or property damage that they or their vehicle sustained. How can you protect yourself against such claims? That’s where third-party liability insurance comes in.
This article provides an overview of third party liability insurance. We will first define exactly what type of insurance third party liability is, and discuss the benefits of having the right coverage. We will also outline what is and is not covered by third party liability insurance, and address the costs of taking out such a policy.
What Is the Definition of Third-Party Liability Insurance?
Third-party liability insurance is a type of liability insurance that is purchased by an insured person (the first party) from an insurance provider (the second party) in order to protect against claims from another individual or entity (the third party).
The purpose of third-party liability insurance is therefore to protect an individual or organization from suffering potentially devastating financial consequences as a result of a lawsuit due to claims for injuries or damages that might be caused to another individual. In simplest terms, this type of coverage will protect you financially in the event that a claim is filed against you.
Third-party liability insurance policies include homeowners insurance, commercial liability insurance, and automobile insurance. For many individuals, automobile insurance is the most common and important type of third-party insurance that they will have to consider.
In the case of automobile third-party liability insurance, the policy will pay for any costs related to injuries sustained by another driver, in the event that you are found to be responsible for the car accident.
There are two main types of third-party liability coverage:
- Bodily injury liability (BIL) covers expenses if an individual is responsible for an automobile accident that causes injuries to a third-party. Those expenses can include costs associated with hospital or medical care, lost wages, and any suffering caused by the accident.
- Property damage liability (PDL) covers the cost of repairing or replacing another individual’s damaged property, such as a car, but also a building or other structures like mailboxes damaged by the accident you caused.
Requirements and Benefits of Third-Party Liability Insurance
Third-party liability insurance is usually required by law to protect third parties against the financial effects of losses, damage, or injury caused by a vehicle. In most states, drivers must have bodily injury liability and property damage liability coverage. Minimum requirements for such coverage differ from state to state.
Individuals looking to take out third-party insurance should be thoroughly acquainted with commercial auto insurance and consult the specific requirements in their state. Given that it’s a requirement, third-party liability insurance is widely available. The cost of such insurance coverage will depend on the individual’s location, driving history, and the insurance provider.
Third-party liability insurance, both BIL and PDL, should be considered essential for anyone with substantial losses, including homeowners. The limit for each type of coverage should be higher for individuals depending on whether they have greater wealth and higher asset values.
Beyond satisfying legal requirements, the benefit of having third-party liability insurance is that it offers solid protection against potentially severe financial losses. Accidents are bound to happen even if necessary precautions are taken in advance, and the consequences can be disastrous. Lawsuits can be very expensive, and even beyond paying for the cost of damages and lawyer fees, there are also punitive damages to consider.
What’s Covered and Not Covered
In general, third-party liability insurance covers bodily injury and property damage, as suggested by the discussion of BIL and PDL coverage above. Such coverage is by no means limited to car accidents. Food poisoning at a restaurant or damages caused during house or car repairs are other examples of cases that would require third-party coverage.
Beyond that, third party insurance coverage will depend on your insurance provider and the type of policy you decide to take out. If third-party liability insurance is added to a Business Owners’ Policy (BOP), for example, the coverage will be different than if it comes with a general liability insurance, commercial auto insurance, or commercial property insurance policy. When added to employment practices liability insurance (EPLI), third-party liability insurance can protect you against claims made by customers.
Third-party liability insurance does not cover damages to an individual’s own vehicle. If you are the victim of an auto collision, however, the other driver’s insurance (assuming they have coverage) would cover any medical and repair costs related to damages you or your vehicle might have sustained. Third-party liability insurance will not cover damages related to such factors as weather, vandalism, a hit-and-run, fallings branches or debris, and self-inflicted damages or injuries.
Costs of Third-Party Liability Insurance
The wide availability of third-party liability insurance has the advantage of making it relatively inexpensive. As will all insurance policies, however, there are many factors that influence the cost of third-party liability insurance.
The premium that you will pay for third-party liability insurance depends on such factors as your location, your industry, the risks associated with your industry and business, your coverage limit, the size of your company, the number of employees you have, and your history of third-party liability claims. For auto insurance, your driving history and vehicle type are significant factors as well.
Since third-party liability insurance is required in most states, most auto insurance companies offer third party coverage. That includes such large insurance companies as State Farm, Allstate, and GEICO. Some insurers, in fact, specialize in third-party insurance coverage that is both cheap and comes with low limits.
If you’re looking to take out a third-party liability insurance policy, make sure to dedicate the necessary time to evaluate all your options. It is often recommended, for example, to get more comprehensive coverage beyond the legally required amount in order to ensure the best protection possible.
Overview of Third-Party Liability Insurance
Third-party liability insurance is an important and widely available type of liability insurance coverage. While it is legally required in most states, individuals and businesses should consider having solid third-party liability coverage that goes beyond any minimal legal requirements. That way, individuals and businesses can remain protected against damages that can be financially disastrous on both personal and professional levels.
The right type of third-party liability insurance coverage will depend on your own unique needs and requirements. For that reason, you should devote the necessary time and research to consider any legal requirements in your state and evaluate as wide a range of insurance providers as possible before deciding on the best third-party liability coverage to keep you and your business protected.
