What Does Third Party Insurance Cover? How Does It Work?

Third-party insurance is liability coverage purchased by the first party from an insurance company to protect against claims from the third party for injuries or damage the first party causes. But what does third-party insurance cover? Read the full article to know every detail.

Third-party insurance protects customers against financial ruin from potential claims for injuries or damages they may cause to another person. In other words, when you purchase this coverage, it’s designed to protect you financially if someone files a claim against you. A few third-party liability coverage policies include commercial liability insurance, homeowners insurance, and auto insurance. With litigation being a typical response to injury and property damage, you never know when you might be the recipient of a filed claim.

A third-party insurance claim is a claim filed with someone else’s insurance company. For example, if a drunk driver runs a red light and collides with your vehicle, you would likely file a claim with the drunk driver’s insurance company. This would be a third-party claim. In this example, the other driver’s insurance company would be responsible for your damages because drunk the driver’s liability coverage covers injuries caused by his negligent driving.

Because there is no contract between you and the at-fault driver’s insurance company, there are several benefits of filing a third-party claim. You are entitled to claim damages that your insurance policy may not cover, such as payment for medical expenses, pain and suffering, mental anguish, and lost wages. There is a lot to know about third-party insurance that you should know, but you will have to read it till the end. Read it and make an informed decision.

What is third-party insurance for car?

Third-party insurance protects an insured from any legal liability due to the insured vehicle’s actions. This could include accidental death or injury caused by the insured to a third party or property damage caused while using the insured vehicle.

A third-party claim is filed by someone other than the policyholder or insurance company. If you are in a car accident that someone else causes, you can file a third-party claim with the other driver’s insurance for your covered accident-related expenses. If you have liability coverage, as most states require, it is in place to cover third-party claims others may file when you are the at-fault driver.

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, 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, it is best that you compare rates from multiple insurance companies according to the amount of coverage you need. You can seek help from your agency or find an online calculator, which will require you to enter basic information and help you find the best quote for you.

How does third-party car insurance work?

Third-party liability insurance is simple to understand once you grasp what the third party represents. When you refer to yourself, you speak in the first person. Likewise, the person or organization purchasing car insurance coverage is the first party for car insurance. The company you buy insurance from is the second party. If you are liable in an accident, you might hurt another person or damage their property, and that’s the third party in this situation.

If a policyholder meets with an accident, then the insurer offers financial assistance to pay for the cost of repairs to the third-party property. Thus, it reduces the financial burden for the policyholder. The insured must inform the insurance company immediately before filing for a claim in an accident. When the claim is filed, the insurer appoints a surveyor to assess the damages and verify the estimated cost of repairs. Once the verification is completed, the insurer settles the claim.

What does third-party auto insurance cover?

There are two types of liability insurance coverage:

Property damage liability coverage

This type of coverage pays for the damage you (or someone who drives your car with your consent) do to someone else’s property. The earlier example of the fender bender and consequent bumper damage provides an example of a scenario in which this type of coverage kicks in. Still, the property can refer to any structure the at-fault driver’s car hits, from lamp posts to buildings.

Bodily damage liability coverage

This coverage pays for the crash-related injuries you inflict on someone in another car. Suppose you live in a state with a no-fault insurance system. In that case, the third party’s injury protection coverage pays for losses up to certain limits. Then the at-fault driver’s bodily damage liability coverage pays for costs above that limit. Live in a state with a traditional tort insurance system? The at-fault driver’s medical insurance payment will pay for their injuries or those of passengers, and their bodily damage liability coverage will pay for injuries to the third party.

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

What isn’t covered by third-party insurance?

As its name suggests, third-party insurance covers damage that you are 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. Third-party insurance will not cover you from damage related to:

  • Weather
  • Falling branches
  • Animals
  • Vandalism
  • A hit-and-run

The 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 vehicle after a crash you are responsible for, or damage caused by a hit-and-run, is covered by collision insurance.

Uninsured and underinsured motorist protection: If a third-party damages your property or injures you and doesn’t have enough insurance to cover the damages, uninsured or underinsured motorist protection could pay for expenses. Because you make a claim, this form of coverage is not 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 insurer. Once they exhaust their PIP coverage or have extensive medical needs, they would make a third-party claim against you for their injuries.

Third-party insurance benefits

Third-party insurance has some significant benefits, which are mentioned below.

Provides legal cover and financial assistance

This insurance policy takes care of the financial burden in the event of an accident that causes damages to a third party. However, the direct beneficiary is neither the policyholder nor the insurance company. However, the beneficiary is neither insurer nor the insurance company but a third party. It is an essential benefit that a third-party insurance policy secures for the driver or owner of the vehicle involved in an accident.

Ensures peace of mind

Third-party car insurance policies bring peace of mind when dealing with accidents that take a plunge on financial payments. Therefore, instead of worrying more about unforeseen expenses, the focus is just on immediate relief from stress and dealing with the incident.

Cost-effective and beneficial to the insurer

The inclusion of third-party vehicle liability insurance components in the overall car insurance policy is either an add-on or an essential part of the main plan.

What is limited 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. When you’re buying third-party auto insurance, you’ll need to choose the amount of coverage you want. Your policy will either be a split limit or a combined single limit.

Split limit policy

While shopping for liability coverage, you may see an insurance policy expressed as “25/50/15.” When you see numbers like these, you’re looking at a split limit policy. These numbers are just shorthand for how much your insurance will cover you for.

The first number is the individual payment limit per accident for bodily injury. The “25” in our example refers to $25,000. It’s how much your insurance will cover each person’s bodily injury costs (other than yours). For example, if you’ve injured someone in an accident and their medical bills are $20,000, you’re covered.

The second number is the overall payment limit per accident for bodily injury. The “50” refers to $50,000. It’s how much your insurance will cover for the total bodily injury costs in an accident (other than yours). For example, if you’ve injured five people and their medical bills are $20,000 each, you’re on the hook for $100,000. In this case, your policy will cover $50,000, and you’ll need to pay the other $50,000 yourself.

The third number is the overall payment limit per accident for property damage. The “15” refers to $15,000. It’s how much your insurance will cover the total cost of property damage in an accident. For example, if you rammed into a barn and it costs $6,000 to repair it, your insurance will cover the expenses. The three numbers will change to create different policies. Your state will most likely have policy minimums, but otherwise, you’re free to choose the right mix for your own needs.

Combined single limit policy

A combined single limit policy offers one coverage limit. Let’s say you took out $200,000 of combined single limit coverage. In the event of an accident, you can split this coverage between different types of damages. For example, you’d be covered in these instances:

One person’s medical bills total $150,000, and there’s $30,000 in property damage.

The medical bills of four people total $200,000.

You caused property damage that costs $180,000. You also need to pay for someone’s medical bill of $15,000. All of those costs are $200,000 or less, so your insurance will cover them.

Third-party insurance claim settlement

If you have an accident, you contact your auto insurance company as soon as possible. The other driver’s insurance company usually handles a third-party property damage claim immediately after the accident and separately from any personal injury claim related to the accident.

You are responsible for kicking off the third-party claim filing process when you are in an accident caused by another driver. While you will not be filing the claim with your insurance company, call your insurer as soon as possible to report what happened. Often, they will file the claim with the driver’s insurance company for you after working with the other insurer to determine fault. If you file the third-party claim yourself, you may be able to create an account with the at-fault party’s insurance and access their online claim portal, where you will file and track the progress of your claim.

You will have to provide details about the driver who caused the accident, their insurance, and the accident. If at all possible, talk with the other driver when the accident occurs and gather the information required to file a third-party claim:

  • The other driver’s name and phone number
  • Their license and registration information
  • Their vehicle information
  • Their auto insurance information (from their ID card)
  • Photos of the accident scene and vehicle damage
  • Witness statements
  • Police report

After you file the claim, the at-fault party’s insurer will probably assign an adjuster to investigate the accident, determine who was at fault, and provide an initial estimate of the repair costs. If the adjuster determines that the other driver was at fault, they will either send you a check for the cost of the repairs or pay the body shop directly, up to the other driver’s coverage limits. If you live in an at-fault state, the at-fault driver’s insurance can also cover injury costs up to their bodily injury liability limits.

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 we recommend you to 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, which is 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. We weighed in a range of factors, including cost, claims satisfaction, financial strength, and coverage availability, to come up with the best car insurance companies for different types of drivers.

Because some companies offer low rates but have fewer coverage options, while others have great customer service but are more expensive, we recommend you to think about what’s most important to you when shopping for car insurance. Then, compare quotes from multiple companies to find the best rates and coverage for your needs. Let’s go through these companies.

Best for cheap rates: GEICO

One of the most recognizable car insurance carriers on the market is also a reliable go-to for standard auto insurance.


  • Available nationwide
  • Easy-to-use website and mobile app
  • Plenty of discounts
  • Comprehensive customer service
  • A wide array of other coverages, including rideshare insurance and collector’s insurance


  • Average claims satisfaction
  • Average customer ratings
  • Doesn’t underwrite all their other insurance products

The full coverage policy with GEICO is 35% cheaper than average. In fact, GEICO’s low rates could save some drivers an average of $622 per year on coverage. Moreover, GEICO’s long list of discounts also helps make it the best car insurance company for cheap rates, especially since many of these savings are easy for most people to get. Some of GEICO’s discounts include savings for taking a defensive driving course, owning a brand-new car, and insuring multiple vehicles on the same policy.

Best for customer service: Amica

Amica, while expensive, is a great option for shoppers interested in top-of-the-line service. If customer service is your top priority, Amica may be the best company for you. In 2021, J.D. Power ranked Amica fourth in the country for claims satisfaction, and it consistently scored well for customer happiness. It is available in every state and the District of Columbia, with the exception of Hawaii.


  • Top-rated customer service and claims satisfaction
  • Premium coverage available
  • Variety of unique perks and features
  • Quick response times from agents


  • Pricier than competitors
  • Can be picky when it comes to customers
  • Not available in Hawaii

Best for teenage drivers: State Farm

With above-average claims satisfaction, a range of discounts, and great options for teen drivers, it makes sense that State Farm is the largest auto insurer in the U.S.


  • Available nationwide
  • Program to help young drivers save money
  • Above-average claims satisfaction ratings


  • No specialty coverage options
  • Pricier than similar competitors

Typically, teenage drivers pay much more for auto insurance than drivers with more experience behind the wheel. A 16-year-old pays an average of 255% more for insurance than the typical adult, but our analysis found that State Farm is a much cheaper option for young drivers.

In fact, State Farm charges teen drivers who have their own policy nearly $2,000 less for coverage than the industry average for the same age group.

Best for coverage options: Safeco

Safeco offers four unique policy tiers so you can find the exact level of coverage that’s right for you. Just keep in mind it doesn’t have the best customer service ratings.


  • Offers equipment breakdown coverage to replace broken appliances for just $2 a month
  • File claims online or over the phone
  • Get property damage claims estimates through video chat


  • Rates are 35% higher than the national average, roughly $1,683 per year
  • Less-than-stellar customer service ratings
  • No unique discounts for green or tech-savvy homes

Safeco is the best car insurance company for people who want to get the most out of their auto coverage. Besides offering a full range of standard coverage options, Safeco also offers some extra forms of coverage and perks that you might not find at other car insurance companies, including:

  • Diminishing deductible: For every year of safe driving, your deductible will drop by $100, up to $500 total.
  • New car replacement: Pays to replace your car with a brand-new model if your vehicle is less than one year old when it’s totaled.
  • Rental car reimbursement: Pays for the cost of a rental car if yours is in the shop after a covered accident.
  • Roadside assistance: Covers the cost of assistance or towing if you’re stranded on the side of the road because of a flat tire, dead battery, empty gas tank, an accidental lockout, and more.
  • Original parts replacement: Pays to replace your car’s damaged parts with high-quality manufacturer parts, or comparable parts if the originals aren’t available.


Life is full of risk. Car accidents are not uncommon and can lead to huge medical bills, lawsuits, and the poorhouse if you are not properly protected by insurance. A major part of insurance protection is third-party liability coverage, which will respond on your behalf if you manage to hurt a third party or damage their property.

Since the third-party insurance cover is mandatory, all non-life insurance companies have an obligation to provide this cover. 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.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.