What Is First-Party Insurance?

Terry Masters
Terry Masters
Man climbing a rope
Man climbing a rope

First-party insurance is a type of insurance coverage that protects the party who owns the policy from personal injury, property damage, or loss. It is distinguishable from third-party insurance which compensates someone other than the holder of the policy for injury, damage or loss that the holder causes. Many types of insurance policies contain a combination of first-party and third-party coverages.

Insurance is an investment vehicle that offers protection to the holder and returns based on the law of averages to the person or company providing the coverage. An insurance policy guarantees the insured that in the unlikely event that he experiences a loss, he can recover compensation for that loss in exchange for paying periodic amounts of money that cannot be refunded if a qualifying loss event never occurs. There are many different types of insurance products, including home, car and health insurance.

Different types of insurance also offer varying coverages. There are two parties who can be covered under an insurance policy. The first is the person who took out the policy and is paying the premiums. Coverage of any losses that this person experiences is called first-party insurance. The second type of coverage is for anyone who is not the policyholder but who receives a benefit under the policy, called third-party insurance.

A person who has first-party insurance proceeds directly against his own insurance company to recover compensation for losses. For example, if a policyholder's car is hit by another driver who has no automobile insurance, he would have to put in a claim to repair the damage with his own insurance company, even if the accident was the other driver's fault. Likewise, is a car is stolen, the claim made to the policyholder's insurance company would be for compensation directly from the company under the policy. Other types of insurance coverages that are considered first-party transactions are health and disability insurance, home insurance and business insurance.

Whenever a person submits a first-party insurance claim to his insurance agency, it puts the policyholder and the company in an adverse relationship. This is quite different from a situation where an insurance company defends a policyholder from a third-party claim. As the policyholder and the party seeking to recover compensation, the insured is placed in the position of contesting the merits of a payout with the company he pays as a customer. Many jurisdictions regulate insurance companies to ensure they act in good faith when handling first-party insurance claims.

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