According to Business Dictionary.com, liability insurance is coverage for "civil liabilities to third parties, arising from bodily injury, property damage, or other wrongs due to the action or inaction of the insured." Basically, if your actions lead to harm or wrong impacting another person, you may be liable for damages. Liability insurance provides protection in such instances. While this type of coverage offers coverage for civil liability, it does not include criminal liability.
Types of Personal Liability Insurance
There are several types of liability insurance, including a number that are relevant for individuals. A few of the most common types include:
If you have a car or truck, chances are that you have an auto policy that includes liability insurance, as this type of coverage is required in every state. There are two types of liability coverage associated with vehicle policies: property damage and bodily harm. If you are at-fault in an accident, your liability coverage will pay to repair the other person's car and cover the cost of the other person's injuries, up to your coverage limits. This type of protection does not cover repairs to your vehicle. That would require another type of auto insurance (comprehensive coverage).
Homeowners' policies typically include some level of personal liability coverage. This type of protection covers homeowners and other residents in the event that someone else is injured on the premises or if the residents' actions lead to someone else's property being damaged. Travelers Insurance gives the examples of a visitor getting hurt as a result of falling down the stairs in your home or the damage resulting from your child accidentally throwing a ball through a neighbor's window and breaking a costly item as situations when this kind of coverage would be needed. Swimming pools are another source of potential liability for homeowners.
An umbrella insurance policy is a personal liability policy that provides coverage beyond the limits of other coverage you may have. For example, if you are in an automobile accident that causes property damage beyond your policy's coverage limit, you are responsible for paying the difference. If you also have an umbrella policy, it may provide additional coverage beyond your automobile policy. Assuming the situation represents a covered loss, your umbrella policy would pick up where your auto policy leaves off, keeping you from incurring the financial burden yourself. Umbrella policies have coverage limits, but they typically start around $1 million and can go up as high as $10 million.
Business Liability Insurance
There are several types of business liability insurance important for companies to carry. A few examples include:
General Commercial Lability
According to the International Risk Management Institute (IRMI), general commercial liability is "a standard insurance policy issued to business organizations to protect them against liability claims for bodily injury (BI) and property damage (PD) arising out of premises, operations, products, and completed operations; and advertising and personal injury (PI) liability." A basic example of something that would be covered under this type of policy is a situation in which a customer gets injured as a result of slipping and falling on the company's premises. Businesses will often extend their protection against general (and other types of) liability through a commercial umbrella policy.
Professional Liability Insurance
Sometimes referred to as errors & omissions (E & O) insurance, professional liability polices are important for certain types of businesses and professionals who, according to the Insurance Information Institute (III)," provide professional services or advice to other businesses or individuals." In situations where the "counsel or service" provided could result in the client experiencing losses, the provider may have liability. These are the types of situations that professional liability covers. Most doctors and lawyers carry malpractice insurance, which is a type of professional liability coverage. Others who may need this type of coverage include (but are not limited to) accountants, architects, engineers, and information technology (IT) professionals.
Product Liability Insurance
IRMI defines product liability insurance as "protection against financial loss arising out of the legal liability incurred by an insured because of injury or damage resulting from the use of a covered product." Basically, if a business produces a defective or faulty product that injures someone who is using the items for its intended purposes, the company can be held liable. This type of coverage provides protection against such situations. IRMI indicates that it also applies when damage or injury arises "out of the liability incurred by a contractor after a job is completed."
Seek Expert Advice
These are just a few examples of the various types of liability insurance that individuals or businesses may need. When buying liability insurance, it is important to keep in mind the various types of risks to which you are exposed as well as the value of any assets that you own and need to protect. Discuss your situation with a trusted insurance agent or broker who can provide expert advice regarding your coverage needs.