What is the main purpose of third-party liability?
Third party liability coverage in an automobile insurance policy will cover you if you are at-fault in a motor vehicle accident. In addition to giving you peace of mind, the main purpose of third-party liability coverage is to protect your assets in the event damages are assessed against you.
Standard practice for insurance companies and insurance brokers in Alberta is to recommend $1 million in third-party liability coverage in an automobile insurance policy. As a personal injury law firm, we urge you not to default to this standard practice, but rather purchase $2 million or more in third-party liability insurance.
Why risk protection is advisable for any motorist
Such risk protection is advisable for any motorist who has significant assets — for example, substantial equity built up in a home, a healthy savings account balance, or even a well-paying job from which wages could be garnished.
There are many scenarios where a possible damage award against you could balloon well beyond $1 million. If you are in a motor vehicle accident, potential claims against you could be made by:
- a pedestrian
- a cyclist or motorcyclist
- the driver of the other vehicle
- the passengers in the other vehicle
- passengers within your own vehicle
- or perhaps you could be in a multi-vehicle collision.
Damage awards common misconceptions
The common argument is that you will only have to be worried about a significant damage award against you if the injured defendant or defendants are junior hockey players or medical students, or have the potential for another high-income earning profession.
For example, this Ontario case, was one of the highest damage awards in Canada and demonstrates that injuring anyone can lead to a very hefty damage award. In the case of Gordon v. Greig, 2007, three friends were on their way to a party at one of their parents’ cottages in the lake country in Northern Ontario. They were young at the time of the accident, and 25 at the time of trial. The driver was trying to pass cars on a curve and speeding well in excess of the recommended speed limit. He turned in to avoid a collision and lost control of the vehicle. His two friends, both passengers, were not wearing seatbelts at the time and were thrown out of the vehicle. The driver of the vehicle was found to have a blood-alcohol level greatly in excess of the legal limit at the time.
One of the young men suffered a brain injury and an upper spinal injury and required 24-hour attendant care. He had aspirations to be a tool and die maker or perhaps to work with heating and ventilation. The other passenger was rendered paraplegic in the accident. This young man had difficulties in high school and aspirations to be a landscaper. They were granted damage awards of over $11 million and $8 million, respectively.
Thus, the potential for a substantial damage award against you, if you are at-fault in a motor vehicle accident, is real, despite the common misconception that high awards are only awarded to injured high-income earners.
The situation is of course compounded if there are multiple defendants with multiple injuries.
Third-Party Liability Coverage Recommedations
For the reasons above, we recommend that you purchase at least $2 million in third-party liability coverage for your automobile insurance policy. The relatively minimal extra expense will give you valuable security in the event the worst should happen, and you are found at-fault in a motor vehicle accident.
If you or a loved one has injured, we recommend that you CONTACT the friendly, helpful, and knowledgeable lawyers at CAM LLP for a free consultation. We also suggest you download a free copy of our Injury Law Handbook which offers helpful hints about what to do if you are involved in a motor vehicle collision. Not only does the handbook review Third Party Liability Insurance, which we’ve discussed above, but it covers sources of compensation that may be available to you if you’re injured in a motor vehicle accident/
Note: This blog post was originally published in December 2017 and has since been updated with relevant content
FAQs
Third party liability coverage in an automobile insurance policy will cover you if you are at-fault in a motor vehicle accident. In addition to giving you peace of mind, the main purpose of third-party liability coverage is to protect your assets in the event damages are assessed against you.
How much is $2 million liability insurance? ›
On average, an insurance policy that offers coverage for up to $2 million can cost about $30 a month in premiums.
What is the purpose of third party liability? ›
Third-party liability insurance is a type of coverage that financially protects you if you're considered responsible for damages or injury to another person or their property.
What is the minimum amount of third party liability insurance coverage that is required by law in Alberta? ›
The minimum requirement for mandatory auto insurance in Alberta is $200,000 in Third Party Liability, Direct Compensation – Property Damage, and Accident Benefits coverage.
What is the minimum amount of liability coverage required in an automobile insurance policy issued in Nevada for damage to the property of others in any one accident? ›
How much auto insurance am I required to have in Nevada? Starting July 1, 2018, the minimum motor vehicle liability insurance coverage will increased to $25,000 in bodily injury per person, $50,000 in bodily injury per accident, and $20,000 in property damage ("25/50/20").
Do I need a $2 million dollar umbrella policy? ›
The amount of your umbrella insurance policy should match your entire net worth. So if your assets stand at $1 million—bingo. That's how much umbrella insurance you need.
Is $2 million in life insurance enough? ›
It's generally recommended that you get a policy for roughly 5 to 10 times what you earn a year (with some exceptions in either direction). That means a $2 million dollar policy could be a good fit for someone whose annual salary is $200,000 to $400,000.
Why use third party insurance? ›
Benefits of Third Party Car Insurance Policies are:
Third party car insurance policy covers the insured person's legal liability in case of death or disability to any third party, and any loss or damage to a third party property. The legal and financial burden is taken care of in such a scenario.
What is the difference between full coverage and third party insurance? ›
The main difference between comprehensive and third-party insurance is the coverage offered. A third-party insurance covers only the damages caused to the third party and their property or vehicle. Whereas comprehensive car insurance covers both own damage and third-party liabilities.
What is the third party liability clause? ›
The term third-party liability can also refer to an agreement between two or more parties in which one party agrees to indemnify the other in the event of liability for damages or losses caused to a third party. This type of agreement is commonly used by businesses to protect themselves from potential liability.
$2 million dollars is the current maximum liability an individual can get on an auto insurance policy. You can increase your personal liability coverage up to $5 million on top of your auto liability insurance with an umbrella insurance policy.
What does a third party liability policy provide coverage for? ›
Third-party insurance is a form of liability insurance that covers you when someone makes a claim against you for damages. A common example of this is auto insurance, which will pay another driver who is injured in an accident that you have caused. Another common type of third-party insurance is for property damage.
What is the best auto insurance for new drivers? ›
We chose State Farm, USAA, Geico, Erie Insurance and Liberty Mutual as the best providers for new drivers. Depending on their location, vehicle, age and other factors, new drivers can pay $3,000 per year or more for car insurance.
What is limit of liability coverage? ›
Liability limits are the maximum dollar amount of damages (“indemnity”) an insurance carrier will pay on your behalf. Limits are broken down into two categories: the per claim limit and the aggregate limit.
Why is Nevada car insurance so expensive? ›
Car insurance in Nevada is expensive because of the state's relaxed alcohol laws and Las Vegas party-goers. In Nevada, you can expect to pay approximately $5,119 per year for full coverage car insurance or $1,955 per year for minimum coverage.
What is the purpose of minimum insurance coverage? ›
Minimum coverage car insurance will help pay for the injuries and property damage you cause if you're the driver in the at-fault accident. In some states, minimum coverage car insurance also includes PIP and uninsured motorist coverage, which can help pay for your injuries in a variety of scenarios.
How much does 1 million dollars of liability insurance cost? ›
On average, Insureon customers pay $42 per month, or about $500 annually, for a $1 million general liability insurance policy. Additionally, 29% pay less than $30 per month, and 40% pay between $30 and $60 per month. Customers who need more coverage will likely pay a higher premium.
How much for 5000000 of liability insurance? ›
Cost. As a general rule of thumb, figure that each million dollars of insurance cost $1,000. A $5 million Excess Liability Policy would then cost $5,000.
How much does a $1 million dollar umbrella policy cost? ›
Umbrella policies typically start at $1 million in liability coverage. According to an ACE Private Risk Services report noted by Forbes, the average cost a $1 million personal umbrella policy is $383 per year for an individual with one home, two cars, and two drivers.
How much does a $500,000 insurance policy cost? ›
For example, a 30-year-old shopping for $500,000 of coverage and a 10-year term will pay $18.44 a month on average, whereas a 40-year-old would pay $24.80. These premiums increase significantly the older you are, with a 70-year-old paying $397.84 for the same coverage.
