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UPDATED: May 22, 2019
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A basic car insurance policy provides a vehicle owner and drivers in their household with a limited amount of protection if a third-party claim is filed.
While a majority of vehicle owners in the United States comply with their state’s financial responsibility or mandatory auto insurance laws, a large percentage of these policyholders do not understand how their insurance works or what their policy covers.
With this lack of understanding comes a lot of confusion when it is time to file a claim.
Since more half of Americans do not know basic facts about auto insurance, it is no surprise that claimants and policyholders are shocked to learn what is and what is not covered when they are dealing with their claims adjuster.
All policies include third-party coverage, so it is possible at one point in your life while you are licensed you will face a claim filed by a third-party claimant.
Even drivers who are not at fault in an accident can benefit from learning about the claims process and how to protect themselves Here is your guide to the relevant coverage options that pay for the third-party damage and how third-party claims settlements work.
What is third-party coverage?
In a state that operates under a tort auto insurance system, every driver is required to carry liability coverage that covers third-party damages.
Since fault is the major determining factor, drivers who are 51 percent or more at fault for a loss may be held liable to pay for all of the damages to the third-party vehicle occupants who suffered bodily injury or who has property damage.
To ensure that the negligent driver is able to cover their financial liabilities, all drivers in states operating under tort law must have both Bodily Injury and Property Damage Liability.
Here is how each coverage works:
Bodily Injury Liability
Bodily Injury Liability, which is commonly written BI, is the form of third-party coverage that will pay for claims when occupants in the other vehicle are injured.
Your policy will cover the injuries that you cause while you are driving but also covers injuries that are caused by family members, permissive users, and listed drivers.
When you review your BI limits they will be broken down into two sections: per person and accident. You are legally required to carry the state minimums in Bodily Injury Liability, but you can elect to carry higher limits.
Since the state minimums are so low, it is in your best interests to protect your assets with a higher level of BI protection.
Property Damage Liability
Property Damage Liability, which is written PD, is the form of third-party coverage that will pay to repair or replace property when someone else’s property is damaged. Many assume that PD will pay for their own vehicle but that is not the case.
It will only pay for property that you do not own to be repaired or replaced with someone of like kind and quality.
While PD pays for all types of property like signs, lampposts, fences, and trees, it most commonly pays for third-party vehicles.
It is important to be aware of the fact that the limits that you carry for PD are per accident and not per object damaged.
If you carry low limits and damage several vehicles or public signs, you may be stuck paying for the remaining costs out of pocket.
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Why is third-party coverage important?
The first reason why most people buy insurance is to satisfy auto insurance laws in their state. Failure to purchase at least a minimum amount of third-party coverage can result in some very expensive and very time-consuming penalties.
You also buy insurance to provide you with financial protection if you are at a loss. It is not until you experience an at-fault accident that you realize how much of a barrier of protection your liability coverage provides.
Here are just some reasons why having third-party insurance helps you in a claim:
1. Your Insurance Claims Adjuster Represents You
Without insurance, you are left to deal with the injured parties and their claims adjusters on your own. You are not an expert when it comes to the claims process and it will show.
Just one misleading statement could be the difference between being found at fault or not at fault.
Your claims adjuster is your representative and will handle the difficult phone calls and take your statement. They will help advise you what you should and should not do so that you do not affect the investigations stage.
2. Your Insurer Will Settle the Claim for a Fair Amount
Your insurance company wants to settle claims for the lowest possible amount. They will make offers for third-party injury and damage claims and try to settle the claim for a fair amount instead of just complying with the claimant’s first request.
In today’s litigious society, it is not out of the norm for claimants to claim much more than they should so that they can profit from the loss.
With an adjuster by your side, you will know that there is someone fighting for your interests.
3. If the Case Goes to Court, Your Insurer Will Represent You
Insurance adjusters see unfounded claims on a daily basis. If they cannot come to an agreement with the other party, it is possible that the case will go to court. Luckily, having insurance eliminates the need to pay for court costs out of your account.
Your policy pays for legal defense, and the fees won’t come out of your limits.
If a third-party claim is filed against you and it is founded, there is a chance that the claim will lead to an insurance rate increase at your next policy renewal.
After reviewing the new rate charge, it is possible to price the cost of insurance elsewhere to see if you can find a better rate. Once you get the chance to review these quotes, it is up to you to decide if making the switch is wise.
Start comparing car insurance rates now by entering your zip code in our free tool below!