What Is “Third-Party” Auto Insurance?

Last Updated on March 8, 2021

Third-party auto insurance is a type of car insurance that protects other people from damage you cause.

You might buy car insurance to protect your own vehicle. Car insurance covers your own vehicle in a collision. However, third-party auto insurance protects third parties instead of you.

How does third-party auto insurance work? Are you legally required to carry third-party car insurance? Find out everything you need to know about third-party auto insurance.

How Third-Party Auto Insurance Works

Third-party auto insurance is a type of insurance that protects you, the insured driver, against damages you cause to other people and property.What Is “Third-Party” Auto Insurance?

Third-party auto insurance is also known as liability insurance. It protects you from certain liabilities.

If you hit someone else’s vehicle while driving, then you have a liability to repair that vehicle. Your third-party liability insurance covers the cost of repairing the vehicle to pre-loss condition.

You buy insurance for two reasons:

  • To protect your own vehicle from accidents and other damages
  • To protect yourself against liability and damages you cause while driving

If you injure someone, damage someone else’s property, or commit some other offense that leads to damage, then you are liable for covering that damage. You are responsible for restoring that person or their property to pre-loss condition.

What Does Third-Party Auto Insurance Cover?

Third-party auto insurance covers two main things, including property damage and bodily injuries:

Bodily Injury Liability Coverage: This type of third-party auto insurance coverage compensates people for any damage they cause. If you run over a pedestrian, for example, or hit another driver with your car, then your bodily injury liability damage can cover medical bills, rehabilitation costs, pain and suffering, and other expenses.

Property Damage Liability Coverage: This type of third-party auto insurance covers the cost of repairing someone else’s property to pre-loss condition. If you damaged someone else’s car, for example, then your property damage liability coverage will cover the cost of repairing that damage. If you destroyed someone else’s car, then your property damage liability coverage will cover the cost of replacing that car. It also covers damage to buildings – like if you hit a neighbor’s fence or drive into someone’s garage door.

Am I Required to Buy Third-Party Auto Insurance?

Most states require you to buy third-party auto insurance. It’s more commonly known as liability insurance.

Most states have specific liability insurance limits. You must buy a certain amount of liability insurance to legally drive on public roads in that state.

Check with your state’s DMV to verify third-party auto insurance requirements. Even in states with no-fault insurance laws (including 12 states), you must still carry third-party auto insurance.

How Much Third-Party Auto Insurance Do I Need?

Third-party auto insurance has specific limits.

Most states require you to have $10,000 to $50,000 of third-party auto insurance coverage. States list the specific minimum amount of bodily injury liability coverage you are required to carry, along with the minimum amount of property damage liability coverage.

Some drivers meet these minimum limits. As long as your insurance meets those minimum limits, you can legally drive on the road.

Other drivers exceed the minimum limits, buying extra coverage for added protection.

Coverage limits are important. Let’s say your state requires $25,000 of bodily injury liability coverage. You collide with a minivan filled with people, and they require a total of $250,000 of medical bills. Although medical costs have risen substantially over the last decade, car insurance minimum limits have not risen to match. That could leave you with hundreds of thousands of dollars in out-of-pocket medical expenses if you cause a serious accident.

Consider Umbrella Coverage for Added Third-Party Insurance Protection

Some drivers buy umbrella coverage with $1 to $5 million of added liability coverage.

Umbrella coverage is the ‘ultimate’ type of third-party auto insurance. It covers your overall liability whether driving, inviting people to your property, or doing anything else. It can prevent your assets from being seized in a lawsuit. Instead of being forced to declare bankruptcy after a $1 million lawsuit from a car accident, your umbrella coverage protects you.

If you have assets worth protecting, then umbrella coverage may be worth it.

Advantages of Third-Party Auto Insurance

Most people are required to carry third-party auto insurance. If you want to drive on public roads legally, then third-party auto insurance is not a choice. However, here are some of the advantages of third-party auto insurance:

Legally Required: Most states require drivers to carry a specific minimum amount of property damage liability coverage and bodily injury liability coverage. If you want to legally drive in your state, then you need to buy third-party auto insurance to meet these liability requirements.

Protection Against Liability: You buy third-party auto insurance to protect yourself against liability. If you hit someone while driving or if you damage someone’s property, then you are responsible for paying for that damage. You are liable for the damage. Third-party auto insurance protects you against these types of liabilities, which means you don’t need to pay out of pocket for someone else’s car repair costs or medical bills.

Customizable Based on Needs: All states have specific minimum liability insurance limits. Some drivers meet those limits to pay the cheapest possible car insurance premiums. Other drivers exceed those limits for added peace of mind and protection. Third-party auto insurance is customizable based on your needs.

Covers Multiple Types of Liability: Third-party auto insurance covers bodily injury liability (including medical bills and lost wages incurred by someone as a result of your action). It also covers property damage liability (including other vehicles, homes, or property you damage while driving).

Safe Drivers Pay Less: If you have a long history of safe driving, then you’ll pay less for liability insurance than a driver with multiple DUIs and at-fault accidents. As a safe driver, you are less likely to damage someone else or their property, so you pay less for car insurance.

How to Make a Claim Through Third-Party Auto Insurance

The third-party auto insurance claims process varies depending on whether you damaged someone else or if someone else damaged you.

You swap insurance information with the other driver at the scene of the accident. If the fault was clear, then the at-fault driver’s insurance company pays for the damage. You contact the at-fault driver’s insurance company to begin a claim.

If you caused the accident, then the other driver would make a claim through your insurance. The other driver would contact your insurer, then receive payment based on medical bills and property damage.

12 states are considered no-fault states. In these states, you contact your own insurer first, regardless of fault. Your own insurance company pays for your damage even if the other driver was at fault.

If unclear how to proceed with your claim, or if the fault was not clear, then contact your insurer. Your insurance company can explain the next steps to take.

Final Word on Third-Party Auto Insurance

Most drivers carry third-party auto insurance, which is better-known as liability insurance. Third-party auto insurance protects third parties (like other drivers and people) against damage you cause.

Compare quotes online to find the best third-party auto insurance for your unique needs.

James Shaffer
James Shaffer James Shaffer is a writer for InsurancePanda.com and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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