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First party, third party: What does this mean?

Question: What does my insurance company mean with the terms first-party insurance and third-party insurance?   How do these terms relate to auto insurance claims?

Answer: First-party insurance is what you buy to protect yourself and your car.  Third-party insurance covers the claims made by anyone you hit or injure. In the middle of all this is the second party, your car insurance company.

Really, it's all about whose policy is paying.

For car insurance claims after an auto accident, first party means you are using your policy and third party means you’re putting a claim through another person’s policy.  If you’re the driver who is at fault, then a third-party claim would be made against your policy by the person you harmed.

First-party insurance coverage would include physical damage coverages of collision and comprehensive to protect your car. 

Personal injury protection (PIP), medical payments (MedPay), uninsured motorist bodily injury and underinsured motorist bodily injury would be first-party medical coverages.  Extra coverages, such as rental car reimbursement, would also be considered first-party coverage.

Third-party coverages would include property damage liability and bodily injury liability.  In the United States, we refer to these as your liability coverages, in many other countries they simply call it third-party coverage.  This is the type of insurance that most states mandate that you carry on a state-minimum auto insurance policy.

The right coverage gives you options

Say you’re in an accident where a person rear-ends you at a stop light.  You get out and change information (hopefully the other driver isn’t a jerk). 

If the other driver is properly insured and you have collision coverage, then you have the choice of putting in a first-party claim through your own collision coverage or a third-party claim through the other driver's property damage liability coverage.

Most drivers in this situation would choose to make a third-party claim through the at-fault party’s insurance policy  If you go through the at-fault party’s liability coverages, the claim goes on their claims history and no deductible is due.

But suppose the other driver challenges your version of events or doesn't have enough coverage.

Then you might file through your own collision coverage, which means you have a deductible to pay and the claim will go on your claims history.   Your auto insurance provider will subrogate with the at-fault party’s auto insurer to try to recoup the money it paid out for your claim, including your deductible, which you may or may not get back.

A single not-at-fault accident like this may leave your rates untouched, but if you have an unlucky year and end up making multiple car insurance claims, your rates could rise or your policy be nonrenewed.

If you now realize you need more first-party coverages to better protect yourself, shop around to make sure you’re getting the best auto insurance rates possible.  Rates can vary by hundreds, if not thousands.  (See “3 ways to save big on car insurance”)

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