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What Is Third Party Property Insurance?

Terry Masters
Terry Masters

Third party property insurance reimburses someone other than the insurance policyholder for damage to or loss of property. It is the typical kind of general liability insurance that is provided to motorists to protect other parties in case the insured motorist is responsible for an accident. This type of insurance is usually provided in addition to first party insurance, which protects the property of the policyholder.

Insurance is a contingent investment vehicle that enables the insured party to recover the replacement value of a significant but unlikely loss in exchange for the upfront payment of small fees, or premiums. The insurance company keeps the premiums paid, even if the company never has to pay out any insurance money. Profits are made on the spread between the amounts collected as premiums and the amounts paid out under insurance policies.

Businessman with a briefcase
Businessman with a briefcase

There are three possible parties to a contract for insurance. The insurance company is always considered the second party. A person who takes out the policy and pays the premiums is the first party. Those who may recover money under the policy, but is not the first party policyholder, is a third party beneficiary.

First party insurance claims compensate the policyholder for loss or damage to his own person or property. For example, if a rainstorm floods a person's house, he would recover the cost to make repairs through his first party home owner's insurance policy. Conversely, third party property insurance protects the policyholder against damage he causes to other people's property. In this case, if he accidentally drives his car through his neighbor's fence, the neighbor would be compensated under the third party provisions of the policyholder's insurance coverage.

Many area regulations require motorists, in particular, to carry third party property insurance coverage as part of their basic automobile insurance policy. This protects the policyholder in case he causes an accident that damages a car that is more expensive than usual. Other parts of the policy protects the policyholder from liability for injury to the other driver, injury to himself and loss or damage to his own property. Some basic automobile insurance policies will replace the property of a third party up to a certain amount, but a distinct third party property insurance coverage usually allows for higher recovery limits.

Another common use of third party property insurance is in the entertainment industry. This type of insurance is usually part of the production budget of any film or show that shoots on location. It protects the production company against damage caused to the property of other people or entities. For example, if the production uses a bank as the remote location for a bank robbery scene and the special effects crew accidentally sets fire to the carpet, the third party property insurance coverage would reimburse the bank to replace the carpet.

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