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Erin Gobler is a personal finance writer and journalist who has been writing for Compare.com since 2023. With more than five years of experience personal finance experience, Erin has covered topics such as investing, credit cards, mortgages, insurance, and more.
Her work has been featured in major publications like Business Insider, Fox Business, and Time.
Erin received her bachelor’s degree from the University of Wisconsin-Oshkosh in 2013, studying journalism and political science. She also received a certificate of financial planning from Boston University in 2022.
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Nick Versaw leads Compare.com's editorial department, where he and his team specialize in crafting helpful, easy-to-understand content about car insurance and other related topics. With nearly a decade of experience writing and editing insurance and personal finance articles, his work has helped readers discover substantial savings on necessary expenses, including insurance, transportation, health care, and more. As an award-winning writer, Nick has seen his work published in countless renowned publications, such as the Washington Post, Los Angeles Times, and U.S. News & World Report. He graduated with Latin honors from Virginia Commonwealth University, where he earned his Bachelor's Degree in Digital Journalism.
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Third-party car insurance helps protect you against claims from other parties. You likely know it as liability insurance. It’s a part of nearly every car insurance policy and applies when you’re responsible for an accident.
Third-party car insurance is one of the most important types of insurance coverage, and it’s also a requirement in nearly every state. Keep reading to learn how third-party insurance works, why it’s important to have, and how to get affordable coverage.
Third-party car insurance, also known as liability insurance, protects you from third-party claims when you’re at fault for injuries or property damage.
If you’re responsible for an accident, having liability insurance allows other parties to file claims against your insurance company, which will handle the claim on your behalf.
Third-party insurance is easy to get and often costs less than $100 per month, depending on your location, insurance company, and personal situation.
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Third-party car insurance refers to any coverage that protects you from third-party claims (meaning claims from other people). It most often comes in the form of liability insurance, and there are several different types you may have in your policy.
You’ll frequently find two types of third-party insurance in car insurance: bodily injury liability and property damage liability.
Bodily injury liability coverage allows someone else to file a claim against your policy if they get injured in an accident you cause. For example, if you hit someone else’s car and they break their leg, they could file a third-party claim against your bodily injury liability coverage.
Property damage liability applies when you cause damage to someone else’s property. This coverage could apply to someone else’s vehicle or a different type of property, like a fence or mailbox.
These coverages fall under the umbrella of third-party insurance because a typical insurance claim has three parties. You’re the first party, the insurance company is the second party, and the person who files the claim is the third party.
In addition to the liability coverage in your auto insurance policy, you might be familiar with several other types of third-party coverage, including:
Homeowners insurance: Most homeowners insurance policies include liability coverage, which protects you and your family against claims by third parties. For example, someone may file a third-party claim against your homeowners insurance policy if they get an injury in your home or if your dog bites them.
Renters insurance: Similar to homeowners insurance, renters insurance also generally includes third-party liability insurance, which protects you if someone files a claim against you, usually due to an injury or property damage.
Business insurance: Many types of business insurance include third-party liability insurance. It protects business owners against claims for everything from personal injury to malpractice, neglect, and more.
Umbrella insurance: Umbrella insurance is a type of third-party liability insurance that protects you against claim amounts that go above and beyond what your other policies cover. For example, it would apply to claims above the limits of your auto or home insurance liability coverages.
Third-party car insurance is the most common type of insurance. Nearly every state — all but New Hampshire — requires drivers to have liability insurance. These laws ensure that after a car accident, the responsible driver will be able to cover damages and injuries to others.
So, long story short, nearly every driver in America needs third-party car insurance.
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Third-party car insurance allows someone else to file a claim against your insurance policy for damages you’re responsible for.
For example, suppose you fail to check your blind spot when changing lanes and hit the car in the lane next to you. And the other driver’s vehicle has some damage.
Because you’re responsible for the accident, you’re also liable for any damages. The other driver would file a third-party claim against your insurance company, often by working through their insurer. They’ll receive a check from your insurer to pay for the damage.
Because you have liability insurance, you won’t be on the hook for paying the damages out of pocket. Additionally, liability claims don’t generally require a deductible like you might see with comprehensive or collision insurance. So, while you may see your insurance premium increase, you likely won’t pay anything out of pocket.
It’s worth noting that third-party coverage that meets the minimum requirements in your state may not be enough to cover all the damage in some situations — like if you total the other car in an accident. For example, if it’s a brand-new car worth $50,000, but your property damage liability limit is $25,000, you’d be on the hook for the other $25,000 out of your own pocket.
Third-party car insurance pays for injuries and property damage that you cause in an accident. Bodily injury liability coverage includes medical expenses, lost wages, pain and suffering, and more.
Property damage liability coverage pays for damage you cause to a vehicle or another form of property. For example, it would fix a car you rear-ended or pay to replace a fence you ran over. This type of coverage can also pay for government property you damage, such as signs or light posts.
But it’s equally important to understand what third-party auto insurance doesn’t cover. First, it doesn’t cover damage to your vehicle or injuries to you or your passengers. Additionally, it won’t cover intentional acts. For example, if you accidentally rear-end someone’s vehicle, your third-party insurance will cover it. But if you purposely rear-end someone, your insurance won’t pay to cover the damages.
Third-party car insurance has plenty of benefits for both you and other drivers on the road. These include:
It keeps you legal. Nearly every state requires third-party (aka liability) insurance coverage. By having this coverage, you avoid financial penalties and license suspension.
It protects you from financial ruin. Having third-party car insurance prevents you from paying for damages out of pocket when you’re at fault for a car accident.
It protects you from other drivers. Other drivers’ third-party insurance protects you, as it means their insurer will pay for it if they damage your vehicle or injure you.
It covers your medical bills. In addition to covering property damage, third-party car insurance also covers bodily injuries. If you get hurt in an accident and someone else is at fault, their insurance will pay for your medical bills, lost wages, and other costs.
It’s usually affordable. Third-party car insurance is easily accessible and, depending on where you live and your personal characteristics, can be quite affordable.
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The cost of third-party car insurance depends on many factors, including your location, driving history, coverage limits, age, gender, credit history, and more.
Generally, the amount you pay for insurance is directly related to your personal risk profile. The higher-risk a customer you are (meaning, the more likely an insurer thinks you are to file a claim), the more you’ll pay for insurance. Factors that can make you a high-risk driver include having previous accidents, claims, or violations; having a poor credit history; and being a young driver.
The national average liability premium in the United States is $92 per month, according to Compare.com data. That said, premiums can range from much cheaper to much more expensive, depending on the state, insurance company, and driver.
Because nearly every state requires third-party car insurance, it’s also quite easy to shop for. Every auto insurance company sells basic liability coverage that meets each state’s minimum insurance requirements.
When you’re shopping for liability insurance, the best first step is to get quotes from multiple insurers. This allows you to compare personalized premiums across several companies and find the most cost-effective option.
But remember that the cheapest insurer for one person may not be the cheapest for another, so it really is best for each person to shop for their own quotes. In most cases, you can purchase a liability policy online that’s effective the same day.
While you don’t need to purchase more than liability coverage, it’s often a good idea since liability insurance doesn’t protect you or your vehicle. So if you damage your car in an accident or another incident, your liability insurance won’t pay to fix it. Instead, you can purchase full coverage, which includes both collision and comprehensive insurance.
Full coverage is more expensive than just third-party insurance on its own, but it’s often worth it in the long run because of the money it can save you.
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If you’re looking to learn more about third-party car insurance, check out these answers to a few commonly asked questions.
Third-party car coverage in insurance is any type of coverage — usually liability insurance — that protects you from claims from other people. If you injure someone, that third party can file a claim against your insurance to cover their damages rather than you being stuck paying their bills out of pocket.
First-party insurance refers to coverage that protects the policyholder. For example, in car insurance, first-party coverage includes collision and comprehensive insurance that protect your vehicle. If an accident you cause or a non-collision event damages your car, you can file a claim to pay for it. Third-party insurance specifically protects third parties, meaning parties other than you.
An example of a third-party insurance claim is when someone causes a car accident, and other people who sustained injuries or property damage in the accident file claims with the at-fault person’s insurance to cover them.
The three main types of car insurance are liability coverage, collision coverage, and comprehensive coverage. Together, these three types often make up what many call “full coverage.” While state law usually requires only liability insurance, many lenders and lessors require collision and comprehensive coverage too.
Data Methodology:
Data scientists at Compare.com analyzed more than 50 million real-time auto insurance quotes from more than 75 partner insurers in order to compile the rates and statistics seen in this article. Compare.com’s auto insurance data includes coverage analysis and details on drivers’ vehicles, driving records, insurance histories, and demographic information.
All the rates listed in this article have been collected from a combination of real Compare.com quotes and external insurance rate data gathered in collaboration with Quadrant Information Services. Compare.com uses these observations to provide readers with insights into how auto insurance companies determine their premiums.
Sources:
Office of Public Insurance Counsel, “Information in Third-Party Claims,” accessed September 4, 2024.
Wisconsin Office of the Commissioner of Insurance, “Consumer’s Guide to Auto Insurance,” accessed September 4, 2024.
RMIIA, “Homeowners Liability Coverage,” accessed September 4, 2024.
Wisconsin Office of the Commissioner of Insurance, “A Brief Guide to Renters Insurance,” accessed September 4, 2024.
U.S. Small Business Administration, “Get business insurance,” accessed September 4, 2024.
Insurance Information Institute, “What is an umbrella liability policy?” accessed September 4, 2024.
Insurance Information Institute, “Automobile Financial Responsibility Laws By State,” accessed September 4, 2024.
Texas Department of Insurance, “Auto insurance guide,” accessed September 4, 2024.
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Erin Gobler is a personal finance writer and journalist who has been writing for Compare.com since 2023. With more than five years of experience personal finance experience, Erin has covered topics such as investing, credit cards, mortgages, insurance, and more.
Her work has been featured in major publications like Business Insider, Fox Business, and Time.
Erin received her bachelor’s degree from the University of Wisconsin-Oshkosh in 2013, studying journalism and political science. She also received a certificate of financial planning from Boston University in 2022.
Nick Versaw leads Compare.com's editorial department, where he and his team specialize in crafting helpful, easy-to-understand content about car insurance and other related topics. With nearly a decade of experience writing and editing insurance and personal finance articles, his work has helped readers discover substantial savings on necessary expenses, including insurance, transportation, health care, and more. As an award-winning writer, Nick has seen his work published in countless renowned publications, such as the Washington Post, Los Angeles Times, and U.S. News & World Report. He graduated with Latin honors from Virginia Commonwealth University, where he earned his Bachelor's Degree in Digital Journalism.
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