What is the meaning of third-party coverage in insurance?

Third-party coverage in insurance refers specifically to the protection offered to the insured when they are held responsible for damages caused to someone else or their property. In this context, "third party" refers to any individual or entity that is not directly involved in the insurance contract—the policyholder and the insurer are the first and second parties, respectively.

When someone makes a claim against the policyholder due to damages or injuries resulting from the policyholder's actions, third-party coverage ensures that these claims are handled and paid up to the coverage limits outlined in the insurance policy. This coverage is crucial because it protects the insured from significant financial loss resulting from legal liabilities, enabling them to manage risks associated with their actions effectively.

The other answer options focus on different aspects of insurance that do not align with the concept of third-party coverage. For instance, protection for the policyholder's own property, exclusive coverage for corporate clients, or protection that benefits only the insurer, do not accurately portray the fundamental principle of third-party coverage.