There are three variables at play in this type of policy; the first party (insured), the second party (insurance company), and someone else (third party). The insured purchases the policy in regards to the protection of him/herself against someone else’s claim.
What is third-party insurance? This is a form of liability insurance. Usually, any damages resulting from an incident are covered by the first party or they risk being sued. Car insurance is one of the most known third-party insurances.
For example, Mr. A has a driver who drives him around. Someday, they get involved in an accident, and the said driver sustains some injuries. Third-party insurance covers the claims of those injuries. The driver here is the third party.
Still using car insurance as our example, there are two types of car third-party insurance;
- The first one is the liability body insurance that covers whatever body injury is sustained by the third party. This cost includes; hospital bills, compensations, pain, and suffering.
- The second one is the liability property insurance. This policy covers the cost of any damages to a property caused by the first party. This cost includes; replacing the facilities of a rented apartment, and compensation.
Some countries make third-party insurance compulsory for first parties. This will ensure that the cost of any damages caused to a third party is truly covered. Industries and businesses are also forced to purchase a third-party insurance policy.
The construction industry is an example of the industry mandated to have third-party liability insurance. – this covers engineers, architects, and subcontractors who sustain injuries on site. However, visitors and users of a facility are usually the recipients of third-party party insurance coverage.
Some laws mandate third-party liability insurance. Although they vary state by state and industry by industry. Under the policy, all major products such as; chemicals, agricultural products, and recreational equipment, are covered. This is, however, beneficial to the companies, they get to save themselves from lawsuits.
BENEFITS OF THIRD-PARTY INSURANCE
In some states, any first party is required to carry both the body liability insurance and property liability insurance. A couple of states just require one of both. However, the minimum requirement is one of both.
Some states employ no-fault laws. This means that any minimal injury suffered by a third party will be covered by the third party. This law was introduced to abolish lawsuits affixed with low coverage amounts.
This also abolishes the claims of pain and suffering by third parties. However, in states that operate under such a law, third-party liability insurance is still necessary. Not all lawsuits are a low amount of money, third-party insurance can protect you from the expensive lawsuits.
The significance of third-party insurance can not be overstated. It’s good to know you are covered when such a situation arises. If you are not covered in such situations, you will have just yourself to blame.
CLASSES OF THIRD-PARTY INSURANCE
There is three popular class of third-party insurance; Automobile liability insurance, public liability insurance, and product liability insurance.
Automobile third-party insurance
The automobile third-party insurance policy covers the bodily injury and property damage costs.
Under the third-party body liability insurance policy, the third party isn’t just the driver of a car, it could be someone that was hit by the car being driven by the first party. The cost of the injuries is sustained by that person would be covered by the insurance policy. Cost such as; hospital bills, pain and suffering compensation.
The third-party property liability insurance covers properties that are not owned by the first party. If the first party destroys someone else’s property – may be their fence or mailbox – the liability insurance policy will cover the cost of replacing the damaged property. It could also be compensation for something that can not be replaced.
Public liability insurance
This insurance policy covers damages incurred at a production, business, or construction site. This policy is purchased by businesses and industries to protect them from lawsuits from third-party.
Continuing with our previous example of a construction company, an employee of yours (subcontractor, engineer) can sue you for injuries sustained while working on your site. Usually, the third-party here are visitors, or users of the facility. Most construction companies include their third-party insurance policy in the portfolio when bidding for a contract.
Product liability insurance
This type of policy is mandatory in most states. When someone sustains an injury or body damage from using your equipment or product, this policy covers the cost.