LIABILITY INSURANCE: What You Need to Know

It’s impossible for any human being to be perfect throughout the entirety of his/her life. We make clumsy mistakes every now and then and sometimes these mistakes affect others physically or mentally. This can lead to lots of money being spent on hospital bills, legal bills,  replacement of damaged property or properties as the case may be. These bills could be overwhelming if they were not included in your financial plans. This is why people are advised to get liability insurance.

What is Liability Insurance

Liability insurance or third party insurance is a type of insurance that shields the policyholder financially in the eventuality of causing harm to a third party. Should your actions cause harm to a person or cause damages on their property or even cause them to die, your liability insurance policy will cover payments for such mishaps but not to the policyholder. The claim payment is paid to the person who suffered for your carelessness. 

Three reasons why your liability insurance may not work for you

Liability insurance covers two risk fees for the policyholder. It covers legal costs and compensations.

• Legal

Liability insurance will cover both your legal claim defence cost and the third party’s if you are found guilty.

• Compensation

Once a policyholder is found liable for the damages suffered by a third party, the insurance company will compensate the victim financially. Monetary Excesses on the claim will be paid by the policyholder.

Three reasons why your liability insurance may not work for you

1. Intentional Damage: If a policyholder is found guilty of intentionally damaging a third party’s property this insurance plan will not work for you.

2. Contractual Liability:  If a policyholder has caused party harm by violating the rules of a contract she/he signed, liability insurance won’t work in such a situation.

3. Criminal Prosecution: If the claim becomes a criminal case your this type of insurance will not work for you.

Here are the different types of liability insurance

• Professional Indemnity
• Product Liability
• Workers compensation and employer liability insurance
• Director or officer liability insurance
• Umbrella policies
• Commercial liability

Three reasons why your liability insurance may not work for you

Professional indemnity

It is also called professional liability or errors and omissions insurance. This kind of liability insurance covers the legal costs and compensation of a policyholder’s client who lost money or suffered damages by the advice, services or design of the policyholder.

An example of an event where professional Indemnity can protect its policyholder is if, for example, an interior decorator was contracted by an event planner to design a hall for an event and she does but after the event, the event planner wasn’t paid her balance because her clients didn’t like the subpar hall design. The event planner lost money because of the negligence of the interior designer so she can sue for damages. If the interior decorator has a professional indemnity insurance plan, her insurer will cover her legal fees and compensate the event planner if found liable.

Product liability

This kind of liability insurance is specially designed for manufacturing companies that produce goods for large consumption. In a case where the insured company’s product causes damages or death to a client or clients, product liability insurance will cover the legal costs and eventually compensations.

Workers compensation and employer liability insurance

This is a compulsory type of liability insurance for workers working in a company to protect the business against a situation where it’s found liable for causing an employee’s injury or death. It covers the legal fees and compensation to the victims or their beneficiaries.

Director or officer liability insurance

This kind of liability insurance covers compensations for claims made by a company’s board of directors and other important managers. Some of the offences which might need your director or office liability insurance to work for you include wrongful trading, breach of trust, misleading statements etc.

Umbrella policies

This is a kind of liability insurance that works when a policyholder’s initial insurance plan can’t cover the claim expenses. It was designed to cover for sudden great loss or damages. If, for example, the damages caused by a manufacturer’s product is too expensive for the company’s product liability insurance to pay for, an umbrella policy will come in handy here. 

Commercial liability

An insurance company offering this type of policy provides its clients with an insurance plan that covers legal bills for the policyholder when an employee or the public suffers injuries or property damage due to the negligence of the employee.  This plan also covers slander, contractual liability, libel, slander, tenet liability and infringement on intellectual works.

So there you have it. Next time you hear people talking about liability insurance just know it’s a type of insurance created to financially protect the policyholder against damages caused on others or their properties.