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Insurance is considered to be one of the best tools that you can have when it comes to safeguarding yourself financially. The majority of the population heard about health, car, or home insurance, but most of them do not know what is the third-party insurance and how it functions. This blog will simply explain what the third-party insurance is and why it is important to you as a U.S. citizen using plain and simple terms.
What Is The Third-Party Insurance?
Third-party insurance is when you are insured against claims by other individuals. In insurance terms:
- The first party is yourself (who is buying the insurance).
- The second party is the insurance company.
- The third party is everyone who is damaged or injured due to you.
So, the third-party insurance is used to cover the cost of the damage or injury that you cause to others. It does not include your personal damage and injuries. Rather, it assists in covering the losses of the third party.
Why Is It Important?
The reason why third-party insurance is important is:
- Even when you take care accidents do occur.
- Should you end up destroying the property of a person or harming one, then you may face the consequences in a court of law and/or a legal settlement.
- You may also need to cover such expenses on your own without insurance.
- Sometimes the third-party insurance is mandatory by law, such as car insurance.
Types of Third-Party Insurance
The United States has a number of types of third-party insurance. Here are the most common ones:
1. Auto Liability Insurance
This is most likely the most common form of third-party insurance. Most states make it a law.
There are two components to auto liability insurance:
- Bodily Injury Liability – This covers any medical expenses, lost income, and other expenses in case you cause harm to another person in an auto accident.
- Property Damage Liability- This covers your damages to the automobile, house, fence or other property of another person.
Example: When you ride through a red light and hit another car, the liability insurance covers the hospital bills and car repairs of the other driver.
2. General Liability Insurance
It is a small business or contractor/freelancer insurance. It covers things like:
- Damage to a customer that happens in your shop or workplace.
- What you or your workers destroy on the property of another person.
- Accident lawsuits, advertising errors or slander.
Example: When a customer falls and breaks his neck in your coffee shop, general liability insurance will pay his medical bills and protect you against law suit.
3. Malpractice Insurance
This is also known as Errors and Omissions insurance (e-o) and covers people in various fields such as doctors, lawyers, consultants and accountants.
It is an area that deals with errors or negligence in delivering services which result in damages to a client or a third party.
Example: When a financial advisor provides bad advice and the client loses money, this insurance will reimbursed the legal expenses or settlements.
4. Homeowners/Renters Liability Insurance
Personal liability coverage is offered in most homeowners and renters insurance policies.
This is useful when a person is hurt at your house, or when you or a relative unintentionally end up destroying the property of another person.
Example: When your dog bites a neighbor, or your child breaks a neighbors window, this insurance will make sure you pay the expenses.
5. Product Liability Insurance
When you are selling or producing products, this applies to claims that your product has caused harm or injury.
Example: When a person is hurt by a defective kitchen appliance that you sold, this insurance will save your company against lawsuits.
Under What circumstances do you need Third Party Insurance?
The following are a few reasons when you may require third-party insurance:
- You own a car or motorcycle.
- You are business, even a small business.
- You are a contractor/consultant/freelancer.
- You rent or own a home.
- You sell, produce or market goods.
In most instances, it is not only a prudent decision, it is the one that the law or your employer or landlord or your customers demand.
Final Thoughts
Third-party insurance is an easy yet effective means of insuring yourself against large financial risks. Whether you are on the road driving a vehicle, starting up your own small business, or simply living your everyday life, peace of mind comes with the appropriate form of third-party insurance.
It does not even make any difference whether the damage or injury was accidental. And it can be expensive if you are found liable – and this is where third-party insurance will come in.
And that way, in case you have not done so yet, you can check whether you have the right coverage or not. It would save you much money and stress in future.
