Liability insurance policy is an umbrella name for types of insurance that protects the insured against claims of injury or damage to another person.

Liability insurance covers loss or damage caused by the insured due to actions legally found to be negligent on another party.

During inception, this policy covered only automobiles, but through time, other elements have been incorporated into this form of Insurance.

How liability insurance works

Liability insurance policy covers you and your business from certain losses. It protects the person or the property of the person injured by the insured and therefore can be referred to as a third party Insurance. This policy is activated when

  • The cause of loss is covered in the contract
  • You register a claim with your insurer
  • If the loss occurred during your coverage period.

When the insured buys the contract, premiums are paid periodically. If the insured causes any loss or damage to a third party, the insurer covers it to the limit set in the contract.

Types of liability insurance

There are different types of insurance coverages under liability insurance, this insurance can be grouped into personal liability insurance policy and business liability insurance policy.

Personal liability insurance policy

The policy available under this type of liability insurance are;

  • Personal liability insurance: this covers for when someone gets hurt within your property or when/if you damage the property of a third party.
  • Property damage liability insurance: this covers for the repair of damage of property caused by the insured in an accident.
  • Bodily injury liability insurance: this covers for medical bills of the third party resulting from accidents caused by the insured.
  • Umbrella Insurance: it includes liabilities that involve both home and auto insurance limits.

Business liability insurance policy

Under business liability insurance policy, there are;

  • Product liability insurance: this type of insurance is for product producing businesses. It compensates the third party if found liable that their product caused harm or death to the third party.
  • Workers compensation insurance: this type of insurance compensates the workers in the event of death or injury while working.
  • Director and officers liability: although most businesses provide Insurance for their employees, they also make provision for extra coverage for their board of directors. It protects them against liabilities in the event that the company is sued.
  • Indemnity insurance:this type of insurance protects businesses against claims as a result of negligence resulting in financial harm.
  • Commercial liability insurance: this type of insurance provides coverage in the event of lawsuit that may arise from injury and property damage caused by the employee or injury caused to the employees or other non staff individuals. It also covers issues like defamation, violation, slander, tenant liability, liability assumed by contract, employment practices liability.
  • Umbrella liability insurance:this types of liability insurance covers other liability insurance when they reach their limit.
  • General liability insurance:this type of insurance is for all types of businesses. It covers bodily damage, medical treatment, injury, property damage and other general claims apart from punitive damages.

Liability insurance restrictions

Liability insurance is a third party Insurance and therefore it does not protect the policy holder. For instance if the car of the policyholder causes an accident and damage occurs on both the car of the insured and that of the other party involved, this policy pays for the repair of the car of the other party and not that of the policyholder.

Minimum requirements to get a liability insurance

Liability insurance for car insurance policy differ from state to state, but Generally, you may be required to have minimum coverage for;Property damage liability and Bodily injury liability

For other forms of liability insurance, other factors that determine the type of coverage you purchase includes

  • Location
  • Type of business
  • No of years in business
  • Claims history.


Be sure to contact an experienced insurance broker to understand your state laws and your insurance needs so you don’t default on anyway or purchase what you don’t need.