What is the Difference Between First & Third-Party Insurance?
Third-Party insurance is a type of liability insurance where you are making a claim on another party’s insurance policy. In third-party insurance, there are three parties. Let us look at who first, second, and third parties are and look at examples of first and third-party insurance.
What is First-Party Insurance?
First-party insurance is a type of coverage where you, the first-party, make a claim against your policy. This means you are paying for your coverage, and when an accident occurs, you ask your insurer to pay you based on the terms of your insurance policy.
For example, if you get into a car accident and you are at fault, you can make a claim against your policy for the accident. When you make the claim on your policy, you are the first-party.
Making a claim of this type covers things like the cost of a rental car, towing costs, damage repair costs, or even for uninsured motorist coverage.
Now that we have talked about first-party insurance, let us look at an example of third-party insurance.
What is an Example of Third-Party Insurance?
We will begin our example of third-party insurance with a few definitions to help us better understand this type of coverage.
Third-party insurance is a type of coverage used when you make a claim on another party’s insurance policy. As we mentioned before, there are three components to this policy.
- First-Party: The person who purchased and is named on the insurance policy. In the case of first-party coverage, this is you.
- Second-Party: The insurer the policy was purchased from.
- Third-Party: The person making a claim against another’s insurance policy. This could be you if you are making a claim on somebody else’s policy.
Now that we understand what first, second, and third-parties are, let us continue with our example.
Imagine you get into a car accident and are not the one at fault. The investigation finds that the other driver in the accident caused it and they are responsible for the damages.
Since you were not at fault, you do not have to make a claim on your insurance policy. Instead, you make a claim on the third-party’s policy to cover the costs.
How is First-Party Insurance Different from Third-Party Insurance?
The difference between first and third-party insurance is whose policy a claim is made on.
In the case of first-party insurance, a claim is being made on your insurance policy by you. With third-party insurance, you are making a claim on another party’s policy.
In the case that a third-party does not have insurance coverage and you cannot make a claim on their policy, it is important you have your own coverage. Having your own coverage ensures that if you get into an accident with somebody who is uninsured, or if you are at fault, there is still coverage for you to fall back on.
How Can I Keep Track of My Insurance Policies?
If you are unsure of how to keep track of your insurance policies, check out SmartCompliance. Find out how we can help you keep track of policies and increase compliance all at once.