What Is First-Party Insurance & How Does It Work?

Insurance serves as a financial safety net, providing individuals with protection against unexpected losses and expenses. Policies are designed to cover various types of risks that can lead to financial setbacks. Understanding the different forms of coverage available helps in securing appropriate protection for personal circumstances.

Understanding First-Party Coverage

First-party insurance directly covers the policyholder. This type of coverage addresses financial losses or damages incurred personally by the insured, rather than covering liability to others. When an insured event occurs, the claim is filed with one’s own insurance company, and the payout is made directly to the policyholder for their own property, health, or personal losses.

It provides reimbursement for direct financial losses you experience due to covered perils. This contrasts with third-party insurance, which provides coverage when you are found responsible for causing damage or injury to another individual or their property.

For instance, if a fire damages your home, first-party homeowner’s insurance would pay you to repair the damage. Similarly, if you are injured in an accident, your health insurance, a form of first-party coverage, would help cover your medical expenses. This coverage does not require proving fault from another party; it requires a covered event directly caused the loss.

Common First-Party Insurance Types

Many everyday insurance policies include first-party coverage. Auto insurance provides several examples, such as collision coverage, which pays for damage to your own vehicle resulting from an accident, regardless of who was at fault. Comprehensive coverage also falls under first-party auto insurance, covering damage to your car from non-collision events like theft, vandalism, fire, or natural disasters. Medical Payments (MedPay) or Personal Injury Protection (PIP) are additional first-party coverages that pay for medical expenses for you and your passengers after an accident, irrespective of fault.

Homeowners and renters insurance policies are first-party coverages, safeguarding your dwelling and personal property. These policies cover losses from specified perils such as fire, theft, windstorms, or other natural events, providing funds for repairs or replacement of damaged items. Health insurance is another first-party coverage, paying for your own medical expenses, including doctor visits, hospital stays, and prescription medications.

Disability insurance offers income replacement if you become unable to work due to illness or injury, providing a financial benefit to you. Life insurance, while paying out to beneficiaries, is considered first-party coverage because the policyholder purchases it for their own life, and the benefits are paid directly from that policy upon their death.

The First-Party Claim Process

When experiencing a loss covered by your first-party insurance, initiating a claim involves several procedural steps. The first action is to notify your insurer promptly about the incident. Most policies require timely notification within a few days or weeks of the loss, as delays could affect your claim.

Following notification, thorough documentation of the loss is necessary. This includes taking photographs or videos of the damage, creating a detailed inventory of lost or damaged property, and collecting relevant records such as police reports, medical records, or repair estimates. Maintaining all receipts for any immediate repairs or temporary living expenses is also important, as these may be reimbursable.

You will need to cooperate with the insurer’s investigation, which involves an insurance adjuster inspecting the damage and gathering information. The adjuster assesses the extent of the loss and determines what is covered under your policy. Policyholders are required to provide reasonable access for inspections and supply any requested documents to facilitate the investigation.

Upon approval, the insurer will process the settlement, which may involve considerations like deductibles and depreciation. A deductible is the amount you are responsible for paying out-of-pocket before your insurance coverage begins. For property claims, depreciation, which is the decrease in value of an item over time due to age and wear, can affect the payout. Some policies pay the actual cash value (ACV), which includes depreciation, while others may offer replacement cost value (RCV), allowing for recovery of depreciation once repairs or replacements are made and documented.