Third Party Beneficiary

You buy life insurance. The principals for that contract are you and the insurance company. You sign the deal. They sign the deal.

However, you won't benefit. You'll be dead. The insurance company benefits a little (if they're running their business correctly), but, in the end, they're writing a check. The person that check is going to is the third-party beneficiary. They benefit from the deal, even though they aren't a part of the contract.

Life insurance offers the most obvious example of a third-party beneficiary. But the term applies to anyone who benefits from a deal and isn't one of the principals. Under some conditions, these third-party beneficiaries can also sue, if the contract isn't fulfilled.

So...you die. The insurance company just sends a letter to your estate that says "Sucker!" However, your niece was named the beneficiary. She was supposed to receive the life insurance check. She has the right to sue in order to collect, even though she wasn't a principal in the original contract.