Third-party insurance

Third-party insurance is also called liability insurance, and is the part of your car insurance coverage that pays for the injuries or damage you cause in an accident.

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Third-party insurance is another name for liability coverage. When you're in an accident, you're the first party, the insurance company is the second party, and the third party is a driver who makes claims against you for injury or property damage.

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A form of third-party insurance is required in nearly every state, though the amount you have to buy varies depending on where you live. Because it's required to drive in most places, third-party car insurance coverage is widely available. The cost of coverage depends on your location, your driving history, and the insurance company you get quotes from.

Key Takeaways

  • Third-party insurance is also called liability coverage, and can be used to describe a policy's bodily injury and property damage coverage.

  • If you're hurt in a car accident by another driver, their third-party insurance pays for the costs of your injuries and property damage.

  • The cost of third-party insurance depends on the amount of coverage you buy, but it's often relatively inexpensive to add more liability protection to a car insurance policy.

What is third party insurance?

Third-party insurance pays for the costs of another driver's injuries if you're found to be responsible for a car crash. You might have a claim made against you if you injure another person or damage their property. Third-party car insurance is more commonly referred to as liability insurance, and includes both:

  • Bodily injury liability (BIL): Covers expenses if you injure another person in a vehicle accident. Expenses covered by the bodily injury portion of third-party insurance include medical bills, legal fees, lost wages, and funeral costs.

  • Property damage liability (PDL): Pays for the cost to repair or replace another person's property — like their car, or building, fences, and other structures — that you're responsible for damaging. This includes damage to another person's home, business, vehicle, as well as legal fees associated with a property damage suit.

Your third-party insurance does not cover damage to your own vehicle — for this type of damage you would need comprehensive and collision coverage. If another driver hits you and injures you or destroys your vehicle, their third-party liability insurance would cover your medical and repair bills.

How do third-party insurance claims work?

The process for third-party insurance claims works like this:

  1. After you're involved in a car crash, contact your insurance provider. You may have to gather information about the crash, including an accident report, photos, and statements to police officers or other on-site officials.

  2. When fault is determined, the driver who was injured or whose property was damaged makes a third-party insurance claim with the insurance company of the driver who was responsible.

  3. If you're found to be at fault and responsible for the other driver's expenses, you will have to decide to file a physical damage claim to pay for the repair of your own vehicle. 

  4. After gathering information about the expenses, the insurance company will offer a settlement to the claimant if the damage is covered.

If someone makes a third-party claim against you for damage that you cause, they will contact your insurance company. If you're covered for the damage, your insurer will settle the claim up to your insurance limits. If you don't have enough car insurance to cover the damage, you may face legal action from the other driver.

The third-party claims process is why you have to exchange driver's license and insurance information after a crash — no matter how small the accident. 

What isn't covered by third-party insurance?

Like its name suggests, third-party insurance covers damage that you're responsible for causing another driver. Third-party liability insurance does not protect you against damage that's not caused by a third-party driver or by drivers who don't have insurance. You won't be covered by third-party insurance from damage related to:

  • Weather

  • Falling branches

  • Animals

  • Vandalism

  • A hit-and-run

  • Damage you cause your own car

Fortunately, other forms of car insurance do offer protection against the perils that third-party auto coverage doesn't. The following types of auto insurance are alternatives to third-party policies:

  • Physical damage coverage: Physical damage most commonly takes the form of comprehensive and collision coverage. While comprehensive coverage includes protection from damage not caused by a collision, the cost of repairing your own vehicle after a crash you're responsible for, or damage that's caused by a hit-and-run, are covered by collision insurance.

  • Uninsured and underinsured motorist protection: If a third-party damages your property or injures you and they don't have enough insurance to cover the damages, uninsured or underinsured motorist protection could pay for expenses. Because you — the first party — make the claim, this form of coverage isn't third-party insurance, even though another person was responsible.

  • Personal injury protection (PIP): PIP insurance or medical payments coverage pays for the cost of injuries that you sustain after a crash. Since most states that require PIP are no-fault states, a driver who you injured would first file a claim with their own insurer. Once they exhaust their PIP coverage — or if their medical needs are extensive — they would make a third-party claim against you for their injuries.

→ Learn more about what a car insurance policy does and doesn't cover

What are third party insurance companies?

Because a form of third-party liability insurance is required in nearly every state, most car insurers are third-party insurance companies. All of the most well-known insurance companies, including State Farm, GEICO, USAA, Allstate, and Progressive, offer third-party coverage.

While Policygenius recommends that you get more car insurance than the minimum amounts required in your area, some insurance companies specialize in offering cheap third-party insurance with low limits. You may also be able to get third-party insurance that's tied to your individual risk profile. These companies, offering usage-based policies, set your rates according to the number of miles you typically drive and how safe your habits are.

→ Learn more about the best companies for different types of drivers

How much does third-party car insurance cost?

The cost of third-party auto insurance depends on the amount of coverage you buy. While the average cost of full-coverage auto insurance is $1,721 per year, third-party liability insurance is often cheaper on its own.

For example, Policygenius found that increasing your bodily liability insurance from $50,000 per person/$100,000 per accident to $100,000 per person/$300,000 per accident results in a premium increase of 6%, on average. This means that for every $10,000 of bodily injury coverage per individual, you pay about $20.

Because the cost of third-party insurance depends on a variety of factors, including your coverage limits, location,  your driving history, and your vehicle, Policygenius recommends you compare rates from multiple insurance companies, according to the amount of coverage you need.

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Frequently Asked Questions

How to check if you have third-party insurance

Your auto insurance agreement may refer to third-party insurance as liability insurance. Since nearly every state requires that you have some form of liability coverage to drive, and policies include the minimum amount for your state when you purchase coverage, it's likely that you will automatically have some third-party insurance when you buy a policy.

However, you may have to add coverage manually if you want more than the legally required minimum amount. As long as your policy lists either bodily injury or property damage liability coverage, you have third-party insurance.

How much third-party insurance do you need?

A form of third-party insurance is required in nearly every state. Usually you have to carry both bodily injury and property damage liability. However, the amount you're required to buy varies by state. Most commonly, you have to buy bodily injury limits of $25,000/$50,000 and $25,000 of property damage coverage.

Who is the third party in an accident?

If you're in an accident, the third-party driver is the other person involved. If the other driver is responsible for the accident, you will be able to make a claim with their insurance provider for the cost of the damage. If you're responsible, you would be the target of a third-party insurance claim.

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