What is liability coverage?
By Allstate
Last updated: July 2024
If you cause an accident or someone is injured on your property, you could be found legally liable for resulting expenses, such as medical or legal bills. Liability coverage can provide you with protection from these types of expenses, which is why it's a good idea to understand the liability coverage your insurance policies provide and what limits apply. Having the proper safeguards in place may help protect you if the unexpected occurs.
Personal liability coverage is a typical component of home, renters, condo, and auto insurance. But other types of insurance policies may also provide liability coverage. Here's an introduction to the types of liability coverage typically offered in different kinds of insurance policies:
Who needs liability insurance coverage?
Liability insurance coverage is important for anyone who owns a home, condo or car, or even rents a place. It helps protect you if someone gets hurt on your property or in an accident involving your car, or if you accidentally damage someone else’s property. Without it, you could end up paying a lot of money out of pocket.
In most states, drivers are required to purchase liability coverage, as part of their auto insurance, in order to drive legally on the road. Home insurance, however, is not legally required, but most lenders require it – and a standard policy typically comes with personal liability coverage.
What does liability insurance cover?
Liability insurance is a common coverage type in a wide variety of insurance policies, including property insurance, small business insurance and more. In most cases, liability coverage is designed to cover you if you are held responsible for causing injury or property damage – whether someone is injured on your property or if you accidentally injure someone or damage their property. Small business liability insurance, for example, protects your business if someone is injured on your premises or if your business activities cause damage.
Legal and medical costs can add up quickly. For this reason, many opt for personal umbrella protection, which provides extra coverage beyond the limits of your other liability policies, giving you additional financial protection. In all these cases, liability insurance helps pay for legal costs, medical bills and repair costs, saving you from potentially large out-of-pocket expenses.
What liability insurance do I need?
The type of liability insurance you needs depends on the specific insurance policy you have and the laws in your state.
Mentioned earlier, the vast majority of states require liability coverage to legally drive on the road. Typically, liability coverage on your auto policy breaks down into two types: bodily injury liability coverage and property damage liability coverage. Respectively, they protect you if you’re at fault in an accident and are required to pay someone else’s medical bills or property repairs.
In other cases, like for home or renters insurance, liability may not be required by law. But if you’re taking out a mortgage, your lender will most likely require you to purchase home insurance, which includes personal liability coverage. Sometimes landlords will require tenants to purchase a renters policy, which also include personal liability. Again, these are meant to cover you if you’re found at fault for accidental injuries on your property or if you damage someone else’s property (not while behind the wheel, however – that’s where auto insurance would come in).
Landlord insurance also typically comes with liability coverage. In much the same way as the other property protections mentioned, liability on a landlord policy can help cover you if bodily injury or property damage arises out of ownership or maintenance of the property.
Business liability coverage
Small business owners are at risk for certain situations like data breaches or business-related accidents, which is why many types of business liability coverages are offered. Some liability coverages, like commercial general liability, may already be included in a standard business insurance policy. But, there are other types of business liability insurance that you may want to consider, Cyber related coverages such as data breach liability insurance, Employment Practices Liability insurance or Errors and Omissions insurance. Business liability coverage may pay help pay for things like legal expenses or medical bills related to a covered accident that may happen at your business.
Personal umbrella policy
An insurance policy may include some liability protection but remember that your policy's limits will apply. That means an insurance policy holder may still be required to pay out-of-pocket expenses if they're found liable for someone else's loss and the costs exceed the insurance policy's limits. This is when a personal umbrella policy may help. An umbrella policy provides liability coverage beyond the limits of another insurance policy and helps provide greater protection against costly medical bills or property repairs. For example, say you cause a vehicle accident and someone that was injured sues you for $1 million to cover their lost income and other expenses. If your auto policy's liability coverage has a limit of $500,000, you could be responsible for coming up with the additional $500,000. A personal umbrella policy helps cover those additional costs so you aren't scrambling to pay for the rest out of your own pocket.
Learn more about personal umbrella policies.
Liability protection isn't just a good idea — in some instances, you may be required to have it.Your insurance provider can help you understand the liability coverage that may be offered in your own policies, what coverage limits apply and help answer any additional questions you may have.