What’s the difference between first-party and third-party insurance?

If you’ve been in a motor vehicle accident/collision, you may have heard these terms used when trying to get treatment. For example, another driver, who was entirely at fault, hit you. You go to the ER or urgent care afterward, then talk to the other driver’s insurance company and get a claim number. The doctor says you need physical therapy and refers you to a clinic, but when you show up with the claim number in hand, the physical therapist says, “Sorry, we don’t accept third-party insurance. You’ll have to pay out of pocket unless you have personal injury protection (PIP).” 

Doh! Sound familiar? Stick with me as I break down first-party vs. third-party insurance.

What is first-party insurance?

First-party insurance covers the policyholder directly for their own losses or damages. This type of insurance includes policies like health, life, or property insurance, where the insurer compensates the policyholder for covered risks, such as medical expenses, damage to personal property, or loss of life. If you were in a wreck and have been using your PIP coverage, this is first-party coverage.

How third-party insurance works

Third-party insurance, on the other hand, covers claims made by others (third parties) against the policyholder (i.e., the driver who slammed into you because they were texting). Motor vehicles and certain businesses often require it. For example, if a person causes an accident, their third-party insurance would cover the damages or injuries to the other party involved. However, the policyholder is not compensated for their losses unless they have additional coverage, such as comprehensive insurance.

Say it with me: First-party insurance protects the insured party’s interests, while third-party insurance protects them from liabilities to others. This distinction is crucial when navigating insurance claims after an accident.

So, what happens if a provider refuses third-party insurance?

You may have to pay out of pocket for treatment initially. The third-party insurer should ultimately shoulder those costs, but the provider is not required to take third-party insurance and may refuse treatment without payment.

How first-party and third-party insurance affect vehicle repairs

This can also be important if you’re trying to have property damage fixed, such as vehicle repairs after a collision. If the accident was your fault, you’ll be limited to your first-party insurance policy coverages, standards, and exclusions. If you were not at fault — your claim is a third-party claim — you must be compensated for your losses and “made whole.” You didn’t sign on the dotted line for that policy with its standards and exclusions; the other guy did. When that insurance company says, “No, we are replacing your factory car parts with cheaper aftermarket remake parts,” you don’t have to take it. The same goes for rental car times and other benefits that third-party insurers love to cut corners on.

Don’t let insurance companies shortchange you

Check out other articles on our blog for more tips and tricks on ensuring you aren’t left holding the bag after an accident. If you are caught up in the fallout of an accident or injury and it feels like everyone is just trying to make things more complicated for you, call Carlisle + Byers for a free consultation.