Liability insurance refers to a category of insurance policies that protect individuals, businesses, or organizations from being sued or held liable for activities such as negligence, accidents, property damage, injury, or malpractice.
A liability insurance policy usually accounts for the cost of legal fees, such as hiring a attorney, as well as any required legal payouts if the policy holder is found legally responsible. Liability insurance policies do not cover intentional property damages, vandalism, or injuries.
Why is Liability Insurance Important?
Liability insurance is useful to both individuals and businesses in a wide variety of settings and circumstances—but especially those in a professional position to be held legally responsible when someone suffers an injury or health consequences. For instance, liability insurance allows medical practitioners such as doctors to conduct their jobs to the best of their ability, without fearing legal consequences if an unpredicted negative outcome arises from their work. Businesses that manufacture products purchase product liability insurance to ensure they are covered when a product is faulty, and due to such fault harms a third party. Finally, business owners may purchase liability insurance to cover the cost of legal fees and payouts in the case of employees who are injured on the job.
Types of Business Liability Insurance
The larger the business, the more likely the business is to have a vast range of liabilities. Without liability insurance, any and all liabilities can present a threat to the business’ assets and operations. Business owners need to have a liability plan in place to protect their assets. The following are some common types of business liability insurance policies:
- Commercial general liability insurance. This plan protects businesses from claims that arise out of workplace injuries, as well as those caused by employees of the company. Improper use of machinery, falls, slips, and repetitive strain injuries are all common injuries that can occur in most, if not all workplaces. A general liability policy covers accidents—from the employee who trips and falls over a misplaced cord to the employee whose car is damaged by another employee operating heavy machinery.
- Employer’s liability and worker’s compensation. In most states, this type of insurance is obligatory for employees. It protects businesses against liabilities that result from workplace injuries or the death of an employee.
- Product liability insurance. Businesses that manufacture products that could potentially injure or harm consumers should purchase product liability insurance. This type of policy protects against claims arising from injuries and death caused by products.
- Indemnity insurance. Indemnity insurance covers businesses against claims of negligence or financial damages arising from failure to perform or errors. This is crucial for businesses engaged in both financial and legal domains. Mortgage lenders, law firms, accountants, and insurance brokers require indemnity insurance, while contractors, maintenance professionals, and consultants should also consider carrying a policy to protect against lawsuits.
- Director and officer liability insurance. This type of coverage is specifically for members of a board of directors, with insurance covering the executive team should the business get sued.
- Umbrella liability insurance. This personal liability policy is generally used to protect against exorbitant losses, and can be used when other liability insurance policy limits have been reached.