Third-party insurance can help protect your assets.
Third-party insurance, also known as liability insurance, is insurance that a policy takes out to cover potential injuries or harm to an innocent third party. Here is a quick overview.
What is liability insurance?
Liability insurance is a type of insurance that is designed to offer protection against third-party claims. In cases like this, the insurance company doesn't pay compensation to the policyholder, but rather to a third party.
Who are the parties?
There are three parties that are privy to the process. The first party is the person who buys the insurance, the policyholder. The first party buys the insurance to protect its assets in case of an accident. The second party is the insurance company. Its role is to provide compensation to the policyholder for damages of property that they have insured. The third party is an innocent person or persons who become involved in an accident in which the policyholder had a part. It receives compensation for damages or harm to itself or its property due to the accident.
What types of liability insurance are there?
Liability insurance can be broken down into two areas: personal injury protection and property damage. The personal injury coverage compensates the third party for the cost of medical bills and lost wages due to an accident. Protection for property damage covers the third party for damages done to its property during the course of an accident.
Do I need it?
While carrying liability insurance is generally a good idea, in some cases, it is mandatory. For example, most states require you to carry liability insurance while you have a driver's license in order to provide compensation to a third-party victim if you get into an accident. Businesses usually carry liability insurance to protect against things like slip-and-fall claims, or tainted products (such as food).
How exactly does it work?
This is basically how it works: If you're driving down the street and hit a bicyclist or a pedestrian, the liability insurance that you carry will pay for the victim's medical bills and lost wages for any time that they miss from work. The insurance prevents you from possibly losing everything if their bills are greater than what you owe. Your insurance premiums will rise, however.
