Liability car coverage protects you from claims by third parties.
Sometimes, though rarely in the U.S., car insurance is referred to as third-party insurance or third-party car insurance. Rest assured that this isn’t a totally separate car insurance policy or an extra type of coverage you need to buy — if you have auto liability coverage (which is required in most states), you have third-party car insurance.
The first party is you; the second party is the insurance company; and the third party is the person or people who may make claims against you in the future: someone whose vehicle you rear-end, for example. The point of third-party insurance is to protect you against such claims, both by paying your legal fees and any settlement payments, up to the limits of your insurance policy.
To make sure you’re getting the right amount of car insurance coverage, talk to a licensed representative at Policygenius.
Read more about how third-party car insurance protects you:
Broadly, third-party insurance is a type of insurance purchased by a person or business (first party) from an insurance company (second party) to protect them from claims of people they may accidentally hurt or wrong (third party).
In the U.S., this type of coverage is more commonly referred to as liability insurance.
For auto insurance, there are two kinds of third-party insurance: bodily injury liability (BIL) and property damage liability (PDL).
Bodily injury liability (BIL) will cover you by paying for expenses if you injure someone in a vehicle accident. This can include medical bills, legal fees, lost wages and funeral fees.
Property damage liability (PDL) will cover you by paying to replace or repair other people’s property you damage with your vehicle.
Both BIL and PDL only cover the damage of third parties; neither offer protection for your own bills or expenses. If you want to be covered for your own damages, that kind of coverage is called first-party coverage and is optional in some states. Types of first-party coverage include comprehensive, collision (which covers damages to you car), personal injury protection (which covers medical expenses), and uninsured/underinsured motorist coverage (which covers you if your own third-party claims can’t be covered) .
Read more about the types of car insurance that protect you when you’re behind the wheel.
When it comes to auto insurance, third-party or liability coverage is mandated in most states. In the ones where it isn’t, drivers must show that they have the financial means to pay for third-party claims out of pocket.
The term third-party car insurance is much more common in other countries. For example, in Canada, the U.K., Australia, New Zealand, India, and many other countries, bodily injury liability and property damage liability are combined under the term third-party liability coverage.
For third-party auto insurance claims, the person you injure or whose property you damage will make a claim directly to your insurance company, and your insurer will deal with making a settlement.
If someone makes a third-party insurance claim against you, your insurance company will settle the claim, up to your insurance limits. If the claim is for more than you are insured for, you may be found liable for excess damages.
This is why you have to stop and exchange driver’s licenses and auto insurance information if you’re in an accident, no matter how small.
Alternatively, if an accident is someone else’s fault, it’s your responsibility to make your own claim through that person’s insurer. If the person who hit you doesn’t have sufficient coverage or isn’t insured at all, you may have to sue them for damages, though if you have uninsured/underinsured motorist insurance, a type of coverage that protects you in this situation, your own insurance company would pay for your injuries and damage. In a case where the person who hits you doesn’t have enough coverage, your uninsured/underinsured motorist coverage stands in for their own third-party liability coverage.
Read more about uninsured/underinsured motorist insurance.
Logan Sachon is the co-founder of The Billfold, a groundbreaking personal finance site for millennials that was named one of Time's 25 Best Blogs of 2012. Her work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.