Liability insurance is a kind of insurance product that typically protects either an individual or a business from the risk of being sued. When insured with a liability insurance policy, you are protected from being held legally liable for negligence, injury, or malpractice. Policies cover both legal costs and disbursements, should the insured be found legally responsible for any damages incurred. Liability insurance policies typically do not cover damages deemed to be intentional as well as contractual liabilities.
Liability insurance is crucial for professionals who may be held legally liable for injuries incurred through their products or services. For instance, doctors require liability insurance to protect them in the event that they are sued by patients or patients’ families for malpractice. Product manufacturers should purchase product liability insurance in the event that a product is faulty and causes injury or damage to a third party. Liability insurance also protects business owners from legal costs and payouts when an employee is injured during regular operations.
Types of Liability Insurance
Most business owners are exposed to a broad range of different liabilities. Any and all of these liabilities may put their assets in jeopardy. An asset protection plan consists of liability insurance coverage to protect the business’ assets. The following are some of the most common types of liability insurance for professionals and businesses:
- Indemnity insurance. When a third party makes a negligence claim against an individual or business, indemnity insurance provides protection. Indemnity insures against financial harm done to a third party that resulted from the insurer’s failure to perform or mistakes.
- Employer’s liability. Sometimes known as worker’s compensation, this type of insurance is usually mandatory. It protects the business when an employee is injured or killed on a work site. This includes injuries sustained while the employee is performing his or her duties, as well as those sustained when an employee is simply on a work premises.
- Director and officer liability coverage. Businesses that are guided by a board of officers or directors can purchase insurance to protect company executives and leaders in the event that the company is sued. Though the people who direct corporations are by definition personally protected against liabilities, some companies choose to add protection to significant members of their executive leaders.
- Product liability insurance. Businesses that create products and sell them on the general market are liable when a product is faulty. Product liability insurance offers the company protection when a lawsuit arises as a result of injury or death caused by a product.
- Commercial liability insurance. This standard commercial general liability policy offers coverage for lawsuits that that arise when employees and the public are injured, property damage is caused by an employee, or injuries are sustained as a result of employee negligence. These policies sometimes also cover intellectual property infringement, libel, tenant liability, slander, contractual liability, and employment practices liabilities.
- Umbrella liability policy. These personal liability policies are an additional form of liability coverage. They tend to apply when the insurer reaches the limits of other liability policies.