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Third Party Car Insurance: What You Need To Know

Our lawyers explain third party car insurance and how it pays the compensation you’re entitled to for personal injuries after an accident

Third party car insurance is the liability insurance coverage that an at-fault driver relies on after a car accident to pay for the pain and suffering compensation, excess medical benefits and lost wages and other economic damages that he or she owes to the people who were injured.

Often referred to as “bodily injury liability insurance” or “residual liability insurance,” third party insurance is a required coverage for anyone who drives regularly in Michigan. Additionally, Michigan law requires drivers to purchase this coverage with mandatory minimum coverage limits.

What is third party car insurance?

Third party car insurance is the liability insurance for the at-fault driver who caused your accident. It provides coverage if you sue the at-fault driver for your injuries and it is mandatory in Michigan. Starting July 2, 2020, the minimum coverage limits are $250,000 and $500,000.

Anyone who drives regularly in Michigan must have third party insurance with the following, legally-mandated minimum coverage limits:

  • “[N]ot less than $250,000.00 because of bodily injury to or death of 1 person in any 1 accident.” (MCL 500.3101(1); 500.3131(2); 500.3009(1)(a))
  • “[N]ot less than $500,000.00 because of bodily injury to or death of 2 or more persons in any 1 accident.” (MCL 500.3101(1); 500.3131(2); 500.3009(1)(b))

However, the law also provides that a driver “may choose to purchase lower limits” of $50,000 and $100,000. (MCL 500.3009(5))

Significantly, prior to July 2, 2020, the legally required minimum limits for third party insurance were $20,000 and $40,000. (MCL 500.3101(1); 500.3131(2); 500.3009(1)(a) and (b))

What does it cover?

For an at-fault driver who causes a crash resulting in bodily injury or death, third party car insurance covers his or her liability for pain and suffering compensation, excess medical benefits and lost wages and other economic damages. The extent of coverage depends on the liability policy limit.

Specifically, if you or a family member were injured in a car accident and the at-fault driver was found liable for your injuries, then the at-fault driver’s insurance may pay – up to the coverage limit in his or her bodily injury liability insurance policy – for the following

  • Your pain and suffering compensation. (MCL 500.3135(1), (2) and (3)(b))
  • Your excess medical benefits. These consist of either: (1) car accident-related medical bills that exceed the No-Fault PIP medical benefits coverage level selected in the policy through which you are claiming benefits; or (2) all of your accident-related medical bills if you are on Medicare and you opted out of No-Fault medical coverage altogether. (MCL 500.3135(3)(c))
  • Your excess lost wages. (MCL 500.3135(3)(c))
  • Your damages for economic loss if you are not a Michigan resident. (MCL 500.3135(3)(d))

Should I get comprehensive or third party car insurance?

We recommend that drivers get both comprehensive coverage and third party car insurance. However, in Michigan, bodily injury liability insurance (aka third party insurance) – is mandatory for all drivers. Comprehensive coverage is optional.

To learn more about our car insurance recommendations, please check out our blog post, “How much car insurance do I need?

Do you need third party insurance if you have comprehensive?

You need third party insurance even if you have comprehensive. First, in Michigan, third party insurance is required by law. Second, third party insurance provides liability coverage if you cause an accident that injures someone, whereas comprehensive only covers theft or damage unrelated to an accident.

Can I drive any car with third party insurance?

Generally speaking, you can drive any car with third party insurance. If it is your vehicle, then your own third party insurance will cover you. And if it is someone else’s vehicle, then either your own insurance will follow you or the third party insurance on the other person’s vehicle will cover you as a permissive user.

Does third party car insurance cover theft?

In Michigan, third party car insurance does not cover theft. Comprehensive insurance would cover theft of your vehicle, along with fire or glass damage unrelated to a car accident. It covers a driver’s liability for bodily injury damages resulting from a car accident that he or she caused.

How much third party car liability insurance do I need?

You need third party liability car insurance with the minimum coverage limits required by law. Those are $250,000 and $500,000, but drivers may choose lower limits of $50,000 and $100,000. Given the liability risks that all drivers face under Michigan’s No-Fault law, we recommend limits of $500,000 and $1 million.

The financial risk to drivers is greater now than it has ever been during the No-Fault law’s more than 40-year existence.

Drivers who cause car accidents that injure or kill others can still be held liable for the pain and suffering they cause as well as the excess lost wages their victims experience. That hasn’t changed.

But what has changed is that, as a result of the new No-Fault PIP medical benefits coverage levels that will become available in auto insurance policies issued or renewed after July 1, 2020, drivers who cause car accidents can also be held liable for the medical bills incurred by the people they have injured.

In many cases, those medical bills could run into the hundreds of thousands or millions of dollars.

What that means for drivers is if your bodily injury liability insurance limits are too low to pay the compensation and damages you’re liable for, then you will have to use your own personal assets – such a home, vehicles, wages and income, savings, retirement, college account and investments – to pay.

How to file a claim?

You have three years from the date of the accident to file a third party car insurance claim against the at-fault driver for pain and suffering compensation, excess medical benefits and lost wages and other economic damages. To recover pain and suffering, you must show a “serious impairment of body function.”

Injured and need a lawyer? Call Michigan Auto Law

If you have been injured in a motor vehicle crash and you have questions about your legal rights to compensation under the at-fault driver’s third party car insurance, you can call toll free anytime 24/7 at (800) 968-1001 for a free consultation with one of our experienced auto accident attorneys. You can also get help from an experienced accident attorney by visiting our contact page or you can use the chat feature on our website.

Third Party Car Insurance