What is liability insurance coverage?

Liability insurance is a part of the general insurance system of risk financing to protect the purchaser from the risks of liabilities imposed by lawsuits and similar claims. But, do you know what liability insurance is, or how it benefits you? Do you understand just how much you need?

It protects the insured in the event he or she is sued for claims that come within the coverage of the insurance policy. Originally, individuals or companies that faced a common peril, formed a group and created a self-help fund out of which to pay compensation should any member incur loss (in other words, a mutual insurance arrangement).

The modern system relies on dedicated carriers, usually for-profit, to offer protection against specified perils in consideration of a premium.

What is liability insurance?

Liability insurance protects you against financial loss if your actions, your negligence or the condition of your property is found to cause a person to be injured or killed, or a person’s property to be damaged or destroyed or they suffer loss as a result of relying on your services or advice.

Liability insurance policies cover both legal costs and any legal payouts for which the insured would be responsible if found legally liable. Intentional damage and contractual liabilities are typically not covered in these types of policies.

Liability products are most commonly taken out by businesses for risks involved in their day-to-day operation, but they are also built into many property insurance policies, for example liability cover in home and contents insurance.

Liability insurance covers two key financial risks. One is the legal cost of defending a claim. The second is the compensation that you may be directed to pay the injured or wronged party, plus their legal costs, if a claim against you is upheld.

These usually include an excess to be paid by the policyholder in the event of a claim, and generally set a limit on the total amount payable under the policy, as well as a per-claim limit.

Liability insurance is designed to offer specific protection against third-party insurance claims, i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract. In general, damage caused intentionally as well as contractual liability are not covered under liability insurance policies. When a claim is made, the insurance carrier has the duty (and right) to defend the insured.

The legal costs of a defense normally do not affect policy limits unless the policy expressly states otherwise; this default rule is useful because defense costs tend to soar when cases go to trial. In many cases, the defense portion of the policy is actually more valuable than the insurance, as in complicated cases, the cost of defending the case might be more than the amount being claimed, especially in so-called “nuisance” cases where the insured must be defended even though no liability is ever brought to trial.

 

What is liability insurance coverage?
What is liability insurance coverage?

Types of liability insurance

  1. Auto Liability Coverage
  2. Homeowners Liability Coverage
  3. Renters Liability Coverage
  4. Condo Liability Coverage
  5. Boat Liability Coverage
  6. Motorcycle Liability Coverage
  7. Atv Liability Coverage
  8. Snowmobile Liability Coverage
  9. Landlord Liability Coverage
  10. Business Liability Coverage
  11. Personal Umbrella Policy

What does contractor’s liability insurance cover?

Like any other liability policy Bodily Injury and Property Damage. In the case of Contractors in the course of their Operations, in other words, while they working OR, if they have an office, on the premises of their office.

In addition, they are covered for the work that they do (Products & Completed Operations). For example a builder (general contractor) builds a home and sells it. The roof or pipes leak, the damage resulting from their poor workmanship is covered, but they will have to pay to repair the problem out of their own pocket.

What does liability insurance cover?

There are two types of liability car insurance that companies like State Farm offer, and each covers different items:

Bodily Injury Liability Coverage

This type of coverage, often referred to as “BI” coverage, pays for the costs associated with injuries for which you are legally liable.

This means that your actions caused injury to another person and you were found legally responsible for those injuries.

Thus, your BI coverage will pay for bills associated to those injuries, such as:

  • Medical expenses
  • Pain and suffering
  • Lost wages

Property Damage Liability Coverage

This type of coverage, often referred to as “PD” coverage, pays for damage done to another person’s or company’s property, as well as for the loss of use of that property.

This means that your actions caused damage to property (a car, a house, a tree, etc.) and you were found legally responsible for those damages.

Thus, your PD coverage will pay for associated bills, such as:

  • Vehicle repair
  • Repair to the living room wall you crashed through
  • Removal of the knocked over tree

Those are just a few of the bills and costs that could be covered. Also, if you are sued, liability coverage will pay your defense and court costs.

How much does liability insurance cost?

Within any facet of car insurance, how much you pay for liability insurance will vary.

Coverage levelAverage monthly premium
State Minimum Liability Only$52
State Minimum with 500 Comp-Coll$121
50/100/50 BI-PD with 500 Comp-Coll$129
100/300/100 BI-PD with 500 Comp-Coll$137

Which insurance company has the cheapest liability insurance rates?

Useful liability coverage terminology

LimitCoverage description
50/$50,000 in bodily injury liability coverage per person
100/$100,000 in bodily injury coverage per incident
50$50,000 in property damage liability per incident

The amount of liability coverage you carry depends on your personal preference and the laws in your state. Because car insurance is regulated at the state level, each state sets minimum policy limits for liability coverage.

Average Monthly Premium By Liability Coverage Level

Insurance companyState minimum liability50/100/50 BI-PD liability100/300/100 BI-PD liability
Allstate$67$76$84
Farmers$52$60$67
GEICO$40$49$57
Liberty Mutual$53$59$67
Nationwide$59$61$69
Progressive$57$64$73
State Farm$44$52$59
USAA$33$37$42

USAA is the cheapest across the board for liability-only car insurance at all coverage levels. If you do not qualify for USAA, GEICO is the second-cheapest option. Depending on your individual driving profile, your premium could vary. Use our rates as estimates and begin your search for liability insurance with USAA and GEICO.

Although carrying high liability limits costs more, it can save you money in the long run. Not only will exceeding your limits leave you responsible for any additional costs, but a history of low coverage is also considered a risky driving factor by insurance companies. Any time your insurance company views you as a potentially risky client, you can expect a higher premium as a result.

Next, we’ll examine how your rate will change if you opt for collision and comprehensive coverage on top of your required liability insurance. The addition of these physical coverages is what makes a policy full coverage.

Average Monthly Premium By Liability Coverage Level With Comprehensive And Collision

Insurance companyState minimum liability w/ comp-coll50/100/50 BI-PD liability w/ comp-coll100/300/100 BI-PD liability w/ comp-coll
Allstate$138$147$155
Farmers$112$119$127
GEICO$80$89$97
Liberty Mutual$122$128$134
Nationwide$111$107$114
Progressive$113$120$129
State Farm$90$98$106
USAA$75$80$85

USAA and GEICO are the cheapest insurance companies for full coverage insurance. On average, expect your rate to increase by about 56% if you add comprehensive and collision coverages to your policy. Liability-only policies tend to be the cheapest for a reason — they don’t protect you or your vehicle if you’re involved in a collision.

What is liability insurance coverage and cost for liability insurance?
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