Differences Between Third Party & Comprehensive Insurance
Third-party liability insurance in the United States is available in many forms. Businesses and individuals alike---the first party---can purchase insurance from an insurer---the second party---to acquire indemnity against the claims of a third party, who may potentially suffer injury or loss as a result of the actions of the insured. For individuals, the most common form of third-party liability coverage comes in the form of auto insurance. Comprehensive auto coverage is also available, and the two types of coverage have very different functions.
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Third-Party Coverage
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This coverage provides for damage to third-party property and injuries caused to others by the insured. Third-party coverage includes "Property Damage Liability" and "Bodily Injury Liability," and in most states drivers are required to purchase both forms of coverage. The insured's own property is not covered, nor is his accidental death or injury. If a third party suffers injury or loss as a result of the insured driver's negligence, these policies will respond to pay the claim and, if necessary, mount a legal defense and cover those costs, too.
Comprehensive Coverage
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Comprehensive generally means that something is "all-inclusive." However, where U.S. auto insurance is concerned, comprehensive coverage is, in fact, fairly limited. Comprehensive auto insurance compensates the insured for loss of, or damage to, her vehicle, in certain circumstances. Damage or loss caused by collision is not included with comprehensive coverage. What are covered are losses due to vandalism, theft, fire, hitting an animal and damage caused by weather---for example, floods.
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First-Party Injury
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Both third-party insurance and comprehensive coverage provide no personal injury or medical benefits for the insured or others in his vehicle. A vehicle owner who requires coverage for injury or loss caused to him by another party will need to purchase personal injury protection. Vehicle owners without this coverage may need to sue the at-fault driver for compensation in order to recover their medical expenses.
Deductible
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With comprehensive coverage there is a deductible---the insured has to pay a set amount of the loss---which is agreed to at the start of the insurance contract. Having a higher deductible reduces the premium paid, as the insurer is not taking on as much risk. There is no deductible with bodily injury and property damage insurance.
Price
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Insurers are at great risk of hefty potential payouts with liability insurance---the cost of a lawsuit and compensation will usually far exceed the cost to repair an insured's vehicle---and because of this, third-party liability premiums are higher than those for comprehensive coverage.
State Requirement
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Third-party liability coverage, the most basic form of auto insurance, is compulsory in 49 states and the District of Columbia. Massachusetts was the first state to require vehicle owners to purchase the insurance in 1927. Compulsory liability insurance begins in Wisconsin from June 1, 2010, leaving New Hampshire the only U.S. state without mandatory auto liability insurance.
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References
- Photo Credit Jeep and car after the road accident. image by Dragan Trifunovic from Fotolia.com
