Definition of Liability Insurance

What is "liability insurance"? What is the definition of the term "liability insurance"?

Liability insurance basically covers you (or your business) if you get sued.

Let’s say that your car insurance includes $2 million of liability insurance. This liability insurance would protect you against any claims arising from damage to property or other people.

Definition of Liability Insurance - IllustrationFor instance - let’s say that you are out driving one night during a particularly bad rainstorm. Your car skids off the road, knocking over a telephone pole and damaging two parked vehicles.

The people with the damaged vehicles will be filing claims to get their cars fixed, and their insurance companies will go after the driver’s insurance company to reclaim the money. In addition, there will also likely be some liability arising from the felled telephone pole.

“Liability insurance” can be attached to all sorts of different insurance policies, including homeowner’s insurance, car insurance and commercial (business) insurance.

For instance, liability on a homeowner’s policy would cover against somebody injuring themselves on the policy holder’s property, etc. Liability insurance on a commercial policy would cover the business owner if they were sued.

In short - liability insurance covers a policy holder if they end up on the receiving end of a lawsuit.

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