Everything You Need to Know About Third-Party Liability Insurance

When someone makes a claim against you, third-party liability insurance can protect you financially. You’re probably more familiar with basic forms of this insurance type, including automobile insurance and bodily injury insurance. 

Not all standard auto insurance policies feature third-party liability coverage though. For most, it’s something you’ll select when talking to your agent at renewal. The same is true for other third-party coverage, which is why it is important to understand how various coverage types protect you.

Learn more about how to protect yourself and your assets using this valuable insurance.

What Is Third-Party Liability Insurance?

Third-party liability coverage protects you if you are responsible for bodily injury or damage to another person’s property. You can add it to a variety of standard insurance policies, including your home or auto coverage. Some states and regions require that you carry third-party liability coverage while with others, it’s completely up to your discretion.

You’ll receive coverage for the following types of financial commitments;

• Legal fees
• Repair costs for damaged property
• Medical expenses incurred for bodily injury
• Settlement expenses

That way, you aren’t financially liable for these expenses should you be found at fault for a covered incident.

How Does Third-Party Liability Insurance Work?

Third-party liability (TPL) insurance helps protect you when you face an unknown or a surprise incident. To better understand how it works, here’s a look at some examples of when this coverage would be effective in various scenarios.

If you were driving your car, lose control because of poor road conditions and hit your neighbor’s fence, third-party coverage will help pay for the damage to your neighbor’s fence. Normal policy deductibles would apply, but you wouldn’t be left holding the entire bill.

Another covered scenario would be if you were turning at an intersection and forgot to check the crosswalk for pedestrians and accidentally caused injury to another person. Your third-party coverage would pay the medical expenses for that person.

Homeowners who host gatherings at their homes can also ensure they are protected from unforeseen circumstances with the coverage. For example, if you were to host a deck party and not realize that your deck has structural issues and could give way at any point and someone gets hurt in the process. The third-party coverage would pay the medical bills for the injuries your deck party guests incur as well as any legal fees involved in sorting out the process.

Everyone should carry this type of insurance because there are so many scenarios you cannot predict. Regardless of whether you’re a great driver, this insurance can help protect you from challenging road conditions, such as snow and ice as well as accidents that law enforcement deems were your fault even though you could not realistically avoid the situation.

How much coverage you need on your policies will vary based on your financial situation, how much insurance you can afford and the legal policies in the area where you live.

The legal fees associated with injury to someone else or their property can add up. That’s why it is wise for even well-off people to carry this insurance.

To add coverage to your policy, discuss it with your insurance agent or review your policy documents to see whether you have the coverage and at what limits. This will tell you how well you’ll be covered in case of an accident.

The Pros and Cons of Third-Party Liability Insurance 

For the most part, insurance coverage is an advantage because it helps protect you from unforeseen circumstances and avoid financial ruin from one mistake. It can also remove many of the headaches associated with being responsible for an accident because you won’t need to hire an attorney to defend you or sort through what expenses you are personally responsible for.

That said, there are still several pros and cons you’ll want to consider before adding this insurance to your coverage options.

Pros

• Legal liability protection in the case of an accident or injury you cause
• Financial protection from injuries or accidents you cause, which would otherwise lead to out-of-pocket expenses that could be devastating
• Peace of mind that you’ll be protected in case of an unforeseen accident
• Compliance with local laws in certain states that require this insurance coverage

Cons

• Coverage is capped at certain limits, meaning you could still have some financial liability for an accident based on your coverage
• Adding the coverage will raise your insurance premium rates, especially if you’re seen as a risky individual to cover
• You’ll still be responsible for deductibles in case of an accident
• Filing a claim can be complex and time-consuming, which also means financial restitution can take time

Different Types of Third-Party Liability Insurance

Learn the various types of insurance coverage you can get when adding third-party liability to your policies. Here’s a look at common options and what they cover.

Bodily Injury Liability Coverage

Ensure you’re covered in case you cause bodily injury to someone else. Many states require motorists to carry this insurance, but you can also get bodily injury coverage through your homeowners insurance in case someone gets injured on your property.

Property Damage Liability Coverage

When the policyholder damages someone else’s property, including another vehicle, land or building, this insurance coverage kicks in to provide financial protection. Many states and local jurisdictions require that motorists carry this insurance given the risks associated with operating a vehicle.

Professional Liability Insurance

This is a type of business insurance that helps protect your organization from claims of neglect from customers. It provides coverage for a variety of claim types:

• Copyright infringement
• Personal injury
• Negligence

Depending on the type of business you run, you might be required to carry professional liability insurance to enter certain contracts or conduct business in some areas. In some cases, you might hear this coverage called errors and omissions insurance.

Auto Insurance With Third-Party Coverage

In case of an auto accident, you are the first party, your insurance company is the second party, and the third party is anyone you hurt or whose property you damaged during an accident.

Most states have requirements for auto insurance with third-party coverage but how much coverage you must carry varies by state.

Third-Party Liability Insurance Cost

As you evaluate whether to add coverage to your policy, you’ll want to weigh the pros and cons with the total cost of the insurance. Many factors will impact what you pay for coverage, including:

• Where you live
• Your driving history
• Your claim history
• How much coverage you purchase
• The vehicle you drive
• The size of your home
• Gross profits for your business
• Type of business you manage
• The customers you serve

To reduce what you’re spending on insurance coverage, you can follow these steps:

1. Shop around for your insurance or get a new price quote every few years. As factors in your insurance change, the best insurance company for coverage will also change.
2. Increase your deductible. The more of the financial burden you carry in case of a claim, the lower your monthly insurance premiums will be.
3. Lower how risky you are. For car insurance, that means driving safely year after year with no citations or accidents on your record. For homeowners insurance and business insurance, it means being claim-free for many years.
4. Consider umbrella policies that handle liability for auto and home under one policy to reduce coverage costs.

Filing a Claim With a Third-Party Insurer

In some cases, you might be the one who was harmed by someone else. If that’s the case, learn how to file a third-party insurance claim to seek financial restitution.

1. Contact the at-fault party’s insurance company. Be ready with the party’s name, phone number, driver’s license and vehicle registration information.
2. Present the insurance company with the policyholder’s insurance ID or policy number.
3. Provide any additional documentation such as police reports and witness statements.
4. Answer necessary questions from the insurance company to open the claim.
5. Work with an adjuster to compile damage and medical expenses.
6. You might need to pay expenses out of pocket while the insurance company conducts an investigation.
7. The final step is receiving payments for your expenses and getting your property repaired.

Protect Your Finances with Liability Coverage

You’re the big loser if you cause injury to someone else or damage their property and don’t have the insurance coverage to pay the bills. You’ll face paying the expenses from your personal funds, which can be quite costly and even lead to bankruptcy or loss of large financial assets, such as your home or vehicle. It’s best to ensure you have coverage for any possible scenario by purchasing third-party liability insurance.

Frequently Asked Questions