First-party insurance is where the policyholder (the first party) is also the beneficiary of the insurance policy. This means that if an event covered by the policy occurs, the policyholder will receive benefits directly from the insurer (the second party). Examples of first-party insurance include life insurance, health insurance, and property insurance.
Third-party insurance, on the other hand, is where the policyholder (the first party) is not the beneficiary of the insurance policy. Instead, the policyholder is insured against the liability for damage or injury to another party (the third party). If an event covered by the policy occurs, the insurer (the second party) will pay benefits directly to the third party. Examples of third-party insurance include liability insurance, such as car insurance and workers' compensation insurance.
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First party insurance |
Third party insurance |
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Provides coverage to the policyholder |
Provides coverage for the policyholder's liability towards a third party |
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Policyholder is the beneficiary |
Third party is the beneficiary |
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Insurer pays benefits directly to the policyholder |
Insurer pays benefits directly to the third party |
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Covers the policyholder's own risks |
Covers the policyholder's liability towards the third party |
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Examples: Life insurance, health insurance, and property insurance |
Examples: Car insurance and Workers' compensation insurance |
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Policyholder files a claim with the insurer if an event covered by the policy occurs |
Third party files a claim with the insurer if an event covered by the policy occurs |
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Less expensive than third-party insurance |
Expensive because it covers liability towards a third party |