Third-party auto insurance protects you from other drivers’ claims.
Third-party car insurance protects you if you’re at fault in an accident and you need to pay for the resulting costs. Unless you live in New Hampshire or Virginia, you’re required to have it before operating a vehicle.
What is third-party auto insurance?
You’re the first party, and your insurer is the second party. Everyone else on the road is the third party. To cover any claims other drivers make against you, you’ll need third-party auto insurance.
The various types of third-party coverage include renters insurance, homeowners insurance and business owners policies. For auto insurance, there are two types of third-party coverage: bodily injury liability and property damage liability. (These are basic forms of liability coverage.)
- Bodily injury liability pays for costs if you’ve injured another person in a car accident.
- Property damage liability pays for costs if you’ve damaged another person’s property in a car accident.
Does it come with a deductible?
Third-party auto insurance usually doesn’t come with a deductible. For example, if you hit another car and your insurance covers the cost of the other driver’s repairs, you won’t have to pay out of your pocket.
What is a deductible?
The deductible is what you’ll pay before your insurance company will pay a claim.
Let’s say you file a claim to your insurance company for a $5,000 car repair bill. Your insurance covers you for that amount, but it includes a $500 deductible. This means you must pay $500 out of your own pocket before your insurance will cover the other $4,500.
Understanding how third-party auto insurance works
When you’re buying third-party auto insurance, you’ll need to choose the amount of coverage you want. Your policy will either be split limit or 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 for 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 for the total cost of property damage in an accident. (This doesn’t include your own vehicle — instead, you’ll need collision coverage for that.) 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 totals $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.
Why should I buy third-party auto insurance?
In every state except New Hampshire and Virginia, you’re required to buy third-party coverage. Furthermore, your state will most likely require you to buy certain minimums in bodily injury liability and property damage liability. Third-party coverage ensures you’ll have the means to pay if your vehicle causes damage to others or their property.
What are the requirements for New Hampshire and Virginia?
If you live in New Hampshire, you’re not required to have auto insurance. However, you need to prove you can pay if you cause bodily injury or property damage. The easiest way to do this, of course, is by purchasing insurance.
It’s not mandatory to have auto insurance in Virginia, either. But like in New Hampshire, you must prove that you can pay for costs stemming from bodily injury or property damage. You can do that by either buying insurance or paying a fee to Virginia’s DMV.
How much does third-party auto insurance cost?
The cost of third-party auto insurance will vary considerably depending on your age, where you live and your driving history, among other factors. As a ballpark, expect it to cost between $1,000 and $2,000 a year.
How do I buy third-party auto insurance?
All insurers will offer third-party auto insurance, which is basic liability coverage. Contact your provider to get a quote. You can also shop around at different providers by using our insurance comparison tool.
Bottom line
Before you hit the road, you’ll need third-party auto insurance. This liability coverage will protect you against other drivers’ claims for bodily injury and property damage.
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