The Difference Between 1st Party and 3rd Party Insurance

There is an important difference between first- and third-party insurance.

Insurance companies and laws are regulated mostly on a state-by-state basis. Laws can change from one place to another, and they might seem more convoluted for those who aren't familiar with reading legal terms. Consumers should be aware of the difference between first- and third-party insurance when dealing with coverage or claims.

First-Party Insurance

First-party insurance is the type of insurance a person buys to cover themselves. This type of insurance covers you and your property, such as homeowner's insurance or renter's insurance.

Third-Party Insurance

Third-party insurance is insurance to cover expenses or suits brought by a third party as a result of the insurance holder's actions. Auto liability insurance is a prime example. This insurance covers you against damages that you might inflict on a third party (someone else) as a result of an accident or other happening. This insurance covers another person's medical bills and may cover repairs to their vehicle.

Doubling Up

To cover all aspects of a person's insurance needs, it's usually recommended that they get both first- and third-party insurance in a number of different situations. Automobile insurance is a typical case. If a person has both first- and third-party auto insurance, then both the damages to their vehicle, as well as the damages to the other vehicle will be covered by their insurance policy in the event of an accident.

Limits

Both types of insurance policies have limits on how much they will pay or the coverage provided to the insurance holder. These limits don't necessarily have to be the same either. A person could have a $100,000 limit on their first-party insurance, but only a $50,000 limit on their third-party insurance.

Insurance Laws

Another difference between first- and third-party insurance is what types you are legally required to have. For instance, in most states it's required that you have auto insurance to drive a car. But what kind of insurance you have to have will vary from by state. One may require first-party insurance, another third-party insurance and still another state may require you to have both types to legally drive.

References

• Indiana Law Journal: A Right Without a Potent Remedy
• Collision Claims: 1st Party Claimant Vs. 3rd Party Claimant