LIABILITY INSURANCE

Liability Insurance — What It Is And Why You Need It

What is liability insurance?  It is the type of insurance that provides coverage for the purchaser if he or she is sued for losses or damages to another person.  However, note that payment is NOT made to the insured person but to a third party that suffers loss or injury based on the insured person’s action or inaction.

Furthermore, liability insurance does NOT cover contractual negligence on the part of the insured.  In other words, if you do NOT meet your contractual obligations, you cannot expect your insurer to come to your aid.  Lastly, an insured is NOT covered by this policy if it is proven that damages were caused deliberately.

Type Of Liability Insurance Policies

1. Business Liability

Every business runs the risk of causing losses or damages to a third party.  This coverage protects your business from liability claims resulting from your premises and operations, your products and services, personal or advertising injury (libel suits are covered here), medical expenses or fire damage.

2. Employer Practices Liability

If your business has employees then there is the need to have this type of liability coverage to protect your business.  This policy covers your business for various claims by employees (past and current). It includes claims of wrongful termination, sexual harassment, discrimination, negligent evaluation, failure to employ or promote, breach of employment contract, wrongful discipline, mismanagement of employee benefit plans, deprivation of career opportunity and infliction of emotional distress.

3. Professional Liability

This is also known as E&O (Errors and Omissions) insurance.  If you are a professional who may be sued for negligence, errors or omissions in the discharge of your professional duties, then you need this policy type. This will cover you if your advice leads to financial loss to your client, a client is dissatisfied with your service and decides to sue for damages and other related issues.

4. Umbrella/Excess Liability

This type of policy increases the amount of liability coverage for a policy holder.  It is also called personal excess coverage.  People buy it to ensure that lawyers do NOT go after their personal assets when the liability coverage amounts in their home and/or auto insurance policy is inadequate for compensation in a liability suit.

There are other liability insurance policy types like general liability and cyber liability.  Your auto insurance policy normally comes with liability components in the form of bodily injury liability, which takes care of people injured in an accident, and property damage liability, which pays for damages to someone else’s property by your vehicle.

So Why Do You Need Liability Insurance?

The answer is simple: We live in a litigious world. People are very quick to claim damages for any action or inaction that they believe impacts them negatively.  You are liable if a dead branch falls off your tree and hits a guest on your property. You are liable if someone is bitten by your dog.  The list goes on and on.

And what happens if the liability amount of your regular policy is inadequate? Any smart lawyer can easily go after your assets in order to get full compensation for his or her client. This means that you need to get the right liability coverage (an umbrella insurance policy) if you have substantial assets and want to keep them safe.

It is on record that 60% of employers are sued each year by their former employees.  Add the fact that communities can easily sue a company for a product, service or activity that has “affected” their lives negatively. Liability insurance is a necessary part of any insurance policy.