What is Liability Insurance

Category : Insurance

Liability insurance is often misunderstood. There is sometimes good reason for this. Insurance representatives, advertising and word-of-mouth information can be more confusing than helpful.

Understanding what liability insurance protects, circumstances that might trigger the need for this protection, and how it works will help you to use this coverage to its maximum.

Misconceptions
Believing that a lack of major assets means that one doesn't need liability insurance is a common misconception. A decision that one has few assets to lose, which leads to a decision to minimize liability insurance, can be costly. Should someone lose a liability case that involves a large cash award to the other party, the courts will not allow one to simply "walk away" because they have few hard assets. The court will make every attempt to collect as many funds as possible, even if a long term payroll payment arrangement is the best option - for the plaintiff, not for you.

Types
There are a variety of types of liability insurance, not just coverage as part of your home or auto coverage. Among the most common types of protection:
1. General liability. Most of the liability insurance coverage that the majority of people have falls into this category. Auto and homeowners/renters insurance policies have a level of this coverage to protect you for a variety of incidents that may indicate negligence that generate cash awards.
2. Product liability. Companies who sell products, which may have caused a loss to another, are often covered by this insurance. Should a loss occur that may have been caused by a covered product, this insurance would be available to protect you.
3. Public liability. Businesses that have public "traffic", like offices, shopping malls, or other locations that third parties frequent should have sufficient public liability insurance should someone be hurt or have their property destroyed through apparent negligence.

Warning
The question, "How much liability insurance is enough? " is one that cannot be answered easily. The sometimes astounding size of the financial awards made by courts makes the question's answer difficult. One safe plan is to overestimate the amount of coverage you need. While this may approach may appear to cost a bit more than you'd like to pay on a regular basis, it will protect you against that one in a million occurrence that might otherwise cost you a million.

Function
An incident that injures another or causes a destruction of property through the negligence of a person generates a need for liability insurance. Its function is to provide the financial resources - cash - to compensate the injured party. Since most liability insurance covers a wide variety of one's actions, it functions as an umbrella of protection for the insured party.

Benefits
Among the benefits of liability insurance, piece of mind, financial stability and protection of assets such as homes, cars and bank balances. While there is no real protection for intentional acts of destruction, accidents or simple negligence can cause serious injury and destruction, and liability insurance helps protect against the additional tragedy of financial loss to the insured.