Liability Insurance protects individuals or businesses against Liability Risk. While there are many different types of liability insurance, the simplest way to categorize them is into (a) Liability Business Insurance; and (b) Liability Personal Insurance. However, because there are various instances where individuals can be covered through Liability Business Insurance, another way of understanding the function of liability insurance is through the scenario of liability risk it is meant to cover. For the purpose of this article, let's categorize liability risk into three scenarios:
- An individual being held liable for personal actions;
- An individual being held liable for professional actions;
- An entity being held liable.
Liability Insurance exists for all three of the above mentioned scenarios, and here are examples for each in the same numerical sequence:
- Someone gets hurt on your property or suffers damage because of your negligence that is not tied to your own profession. Liability insurance for this type of scenario can be found under a homeowners or renters insurance policy;
- A customer suffers financial loss because of your advice or service to them as a function of your profession. Liability insurance for this type of scenario can be found under a professional liability insurance policy;
- A group of people suffer adverse health effects or financial loss from a product or service they bought from a business. Different types of liability insurance exist for this type of scenario including commercial general liability insurance as well as professional liability insurance.
Examples of Liability Insurance
Liability insurance is a type of insurance that covers legal claims against you. In general, liability insurance is designed to protect you from monetary demands or lawsuits filed by third parties who have been injured due to your negligence. If you own a business, then you should consider purchasing commercial general liability insurance. Commercial general liability insurance, aka CGL, provides coverage for bodily injury and property damage caused or allegedly caused by your business including employees. You may also want to purchase professional liability insurance if you provide services to others. Professional liability insurance protects you from being sued for malpractice or negligent conduct committed in the course of providing professional services.
Auto Liability Insurance is another form of liability insurance that covers damages to other vehicles or property caused by accidents involving your vehicle. Your auto insurance policy will cover damages to other cars, pedestrians, animals, and even buildings. Depending on where you live, your auto insurance policy may also cover damages to public roads and bridges.
Umbrella insurance is a type of excess insurance that adds additional protection above what is covered by your primary insurance policies. An umbrella policy is often purchased by businesses and professionals who need extra protection for high-value assets. For instance, if the umbrella insurance to provide you with additional limits on your commercial liability insurance, then the umbrella insurance would be considered a form of liability insurance.