Liability insurance is a type of coverage that protects you from lawsuits resulting from accidents and/or damages to others when you are at fault. Liability insurance will also help you pay for medical bills and property damage to others resulting from an accident or damage that was your fault.
How does it work?
Liability insurance generally consists of two components: bodily injury and property damage. The bodily injury portion protects you if you’re responsible for an accident that causes bodily injury to another. It can pay for their medical bills, loss of wages and also your legal expenses if the injured party sues you.
Bodily injury coverage generally pays per person and per accident and has a maximum amount they’ll pay to each person injured and for each accident. The property damage portion protects you from liability if you damage someone else’s property. This could be their car, fence or even a building. It will pay to have the property either repaired or replaced.
The property damage portion can also help you protect your home and assets in case the damage results in a lawsuit. In an insurance policy, you may see the liability limits written as follows: 100/300/100. This means your insurance will pay up to $100,000 per person; $300,000 per accident and $100,000 for property damage.
What’s it for?
Liability insurance coverage may be part of business insurance protecting the business owner from lawsuits or other damages. It may also be included in a homeowner’s insurance policy, and it provides liability coverage for the homeowner in the case that someone is injured on the homeowner’s property. However, liability insurance seems to be most often used in reference to automobile insurance.
In all 50 states, liability insurance is required by anyone who drives a vehicle. Even if you don’t choose to carry any other type of insurance, you’re required to have a specific limit of liability insurance, and each state differs in their requirements.
What are the pros and cons?
The major advantage to liability insurance is that it not only helps pay for damages and medical expenses that your negligence may have caused to others, but it also protects you from losing everything you own in a lawsuit. As much as we’d like to think our friends, family or neighbors would never consider suing us, lawsuits today are at an all-time high.
Your liability insurance will pay for your legal expenses and any settlement you may have to give to the victim as long as the amount is within the limits of your policy. There really isn’t any disadvantage to liability insurance other than that it may get costly with high-risk individuals. However, even in these cases, the premiums are quite affordable when you consider the alternatives.