Liability insurance—also called “third-party insurance”—protects you against claims, including legal costs and any payouts, resulting from injuries and damage to people or property caused by you, by your actions, or even on property you own. Intentional damage, contractual liabilities, and criminal prosecution are generally not covered in liability policies.
Different types of liability coverage can be added to or bundled with other insurance policies, or they may be a part of a more comprehensive policy. Here are the most common types of liability insurance and what they cover:
Who needs liability insurance
From the list above, it may seem that mostly businesses need liability insurance, but individuals can benefit from it too. High-net-worth individuals, or those who have sizable assets they might lose if sued, should carry personal liability insurance. It’s recommended that anyone with a net worth beyond the combined coverage limits of other personal insurance policies, such as home and auto coverage, also have personal liability coverage.
Other individuals who should protect their assets (large, medium, or small) include landlords—even if you’re only renting out a bedroom, or part of your basement. If you have a secondary seasonal home—like a beach cottage—that you regularly let friends use or invite over to stay with you, or if you have friends use your boat or other recreational vehicle. And finally, 49 of the 50 states (as well as D.C.) require drivers to have some form of liability insurance coverage as part of their auto insurance in case they are found liable for causing an accident, injury, or damage to property.