Third-party liability insurance is a type of insurance that provides coverage to the insured against claims filed against them by a third party. The insured pays premiums to an insurance company in return for protection against claims of bodily injury or property damage filed against them by a third party. Third-party liability insurance is essentially a form of liability insurance, and the two main categories of third-party insurance are liability coverage and property damage coverage.

Third-party liability insurance is mandatory in most countries for any party sued by a third party. For example, in Canada, having third-party liability coverage on the vehicle(s) under your car insurance policy is mandatory in order to drive.

Some common types of third-party liability insurance policies include automobile insurance, homeowners insurance, and business liability insurance. The cost of third-party insurance is often lumped in with other types of insurance protection under one policy, such as an auto, homeowners, or business owner’s policy.

Third-party liability insurance covers a range of costs, including repair costs to damaged vehicles/property, legal fees, settlement costs, and medical costs. Without this type of coverage, insureds would be left to try and pay for the damages out of their own pockets, which is usually not possible.

In summary, third-party liability insurance is a type of coverage that financially protects the insured if they are considered responsible for damages or injury to another person or their property.