Third party liability insurance is a coverage for damages, losses or injuries that may be inflicted upon another party as a result of the actions of the policy holder. It is referred to as third party liability insurance because the coverage deals with the well-being of parties other than you or your policy provider. You are actually the first party while your policy provider is the second party in the chain of parties involved in insurance policy subscription.
It is important to protect yourself or your business from liabilities that may arise from compensation claims filed by persons or entities aggrieved by your actions. For example, if you are found to be legally liable for injuring a pedestrian while driving your car, your insurance company will be on the hook to compensate the pedestrian on your behalf. Moreover, third party liability insurance also covers hefty claims or costs of legal suits that may be filed against you by the injured party.
Liability Insurance Varieties
You can choose your appropriate third liability insurance from numerous varieties ranging from commercial general liability, professional liability, product liability to employment practices liability. Commercial general liability insurance deals with claims that may be filed against your business for bodily injury and property damage. For example, if your security fence collapses and injures a passerby, your commercial general insurance will come in handy in compensating the passerby for the injuries suffered. Professional liability insurance covers cases of negligence and malpractices in service delivery. Product liability insurance provides you protection against the costs of claims and lawsuits associated with damages claimants suffer from using faulty products manufactured or distributed by your business. Employment practices liability covers your business against the costs of lawsuits filed by former and current employees.
Legal requirements to carry to third party liability insurance vary among different states. Some states may make such insurance policies mandatory in some cases. For example, it is compulsory in Michigan to secure the property protection cover when subscribing for auto liability insurance. Taking up third party insurance as a personal initiative to safeguard your assets or your business remains a wise idea, whether required or not.
The decision whether to compensate claims lodged against you by injured parties is the discretion of your insurance service provider. You should not accept liabilities for any incidents or make advance payments to claimants prior to contacting your insurance company. Leave the process of determining the scope of your liability and compensation to your insurance service provider.
Paul Cole-Ingait is a professional accountant and financial advisor. He has been working as a senior accountant for leading multinational firms in Europe and Asia since 2007. Cole-Ingait holds a Bachelor of Science Degree in accounting and finance and Master of Business Administration degree from the University of Birmingham.