If you are looking to purchase car insurance for your car, you may need to ask, First-party vs. third-party insurance: what’s the difference? While there are different types of car insurance, every car insurance policy is different from each other. It is important to understand their differences to help you find the best coverage before purchasing them.
Car insurance policies generally involve the insurance company, the policyholder, and third parties. Aside from this, Another similarity between these two car insurance policies is that they both offer financial protection to drivers in case of an accident. While these two are similar in these ways, they are different from each other in different ways.
First-party car insurance covers the vehicle if a policyholder covers any damages made to the vehicle after a collision or accident. Third-party insurance covers the damages caused by a policyholder to another vehicle. Read further on this write-up to see the differences between these two car insurance policies. This article examines First-Party vs. Third-Party Insurance.
Difference Between First-party and Third-party Insurance by Definition
There are several differences between first-party and third-party insurance. These differences include their definition, coverage types, policy limits, and so on. In this section of my write-up, the differences between these two insurance policies by definition are stated.
First-party Insurance
Just as mentioned earlier, this is a type of car insurance policy that offers coverage for damages sustained by a policyholder’s car. If ever the car gets damaged due to an accident, vandalism, theft, or any other natural cause, this car insurance would cover repairs or replacements of the car. However, this insurance only covers the policyholder’s car, which means the policyholder would have to make out-of-pocket payments if they cause damage to someone else’s vehicle.
Third-party Insurance
This is a type of car insurance policy that covers the cost of repairs or replacements of damages made to a third-party’s car by a policyholder. In cases where a policyholder gets involved in an accident with another driver and they are found at fault, this insurance would cover the damages made. However, unlike first-party insurance, third-party insurance will not cover the damages made to the policyholder’s car. Instead, the policyholder would have to pay out of pocket for car repairs.
Other Differences Between First-party and Third-party Insurance
Aside from definition, other things differentiate these two car insurance policies from each other. What it covers, coverage limits, coverage type, and so on are other differences between these two insurance policies. The table below illustrates the differences between first-party and third-party insurance:
| Differences | First-party Insurance | Third-party Insurance |
| Coverage | It covers repairs or replacements of damages to a policyholder’s vehicle. It covers damages due to floods, strikes, vandalism, riots, fire, earthquakes, theft, and so on. | It covers repairs or replacements to damages caused by a policyholder to a third party due to an accident. |
| Legal Mandate | Drivers must purchase this insurance policy. | It is mandatory for drivers to purchase this insurance policy. |
| Accident Coverage | This car insurance policy offers personal accident coverage. This means the policyholder qualifies for substantial personal accident coverage. | This car insurance policy offers third-party involved insurance coverage based on the decision of the Motor Accident Claims Tribunal. |
As long as you can identify the differences between these two car insurance policies, finding the right coverage would be easier to do.
What Happens if You Purchase Neither First-party Insurance nor Third-party Insurance?
In every state, drivers must have a car insurance policy to be legal drivers, as there are penalties for not having insurance coverage. Every driver must have third-party insurance coverage on their comprehensive car insurance plan. While one is a must, it is advisable to have both. There are penalties to having neither of these car insurance policies. You may lose your driving license or even go to jail for not having insurance coverage.
Will first-party or third-party insurance cover my car damages due to a falling tree?
Third-party insurance only covers damages caused by a policyholder to a third-party vehicle. It does not cover the damages made to the owner’s vehicle. Because of this, third-party insurance will not cover falling trees on a policyholder’s car. Instead, first-party car insurance would cover the damages to your car due to a falling tree. This means drivers with a first-party car insurance policy can file a claim on their insurance for damages to their car, while those without it will have to pay for damages off pocket.