EconGuru Economics Guide RSS Syndication

Submit a Guest Post on!

© Copyright 2006 - 2011 All rights reserved. Assets marked and linked to the original sources are hereby used for educational purposes only and are copyrighted by their respective owners.

Subscribe to EconGuru.

What is Liability Insurance?

Subscribe to EconGuru:

Liability insurance is one of the most popular types of insurance there is. With this type of insurance you are protecting yourself from any liabilities if somebody takes legal action against you. This is also one of the cheapest forms of insurance and this explains its popularity; especially in regards to motor insurance. It is important to note though that those choosing liability car insurance won’t be insuring their own car or property; only against the damage they cause to other road users.

The Different Types of Liability Insurance

There are actually different types of liability insurance and each of these will suit different requirements and situation. Here are the most common types of liability insurance that you will hear about:

  • Employer’s liability insurance is a policy that protects employers from being sued by employees. For instance if an employee gets injured while at work they could sue the employer for a lot of money; awards for injury can be quite high. Liability insurance means that the employer is protected and that any money that needs to be paid out will be handled by the insurance company. This type of insurance is mandatory in many parts of the world including the US.
  • Product liability insurance protects manufacturers of different products from being sued if there are later problems discovered with these items. For instance, if a manufacturer’s product leads to the injury of users then this could lead to huge legal claims. Product liability insurance will protect the manufacturer from having to pay this money out from company funds. This type of insurance is only an optional policy in many places.
  • Directors and Officers (D&O) liability insurance protects directors and officers in a business from being sued for any acts or omissions. This means that if one of their decisions (or their failure to make a decision) leads to a bad outcome this insurance will protect them financially.
  • Professional liability insurance is a requirement in many professions. An example of this is in the medical profession where doctors and nurses will have this type of insurance. If a decision they make leads to a bad patient outcome then this could lead to them being sued by the patient. Professional liability insurance will protect them in this instance.
  • General liability insurance is there to protect a company if there is a claim made by a third party. General liability can cover a whole range of possibilities.

How Liability Insurance Works

The way that liability insurance works is that once an insured party feels that they need to indemnify themselves against some claim they will notify the insurance company in the form of a complaint. Once the insurance company decides that it is their responsibility to defend against this claim they will then proceed to provide an immediate defense. If the claim is rewarded then the insurance company will be obliged to pay this money to the claimant – there will usually be a set sum of money up until the insurer is responsible.

Share This Article:
Meet the Author

Anthony Carter currently resides in Fife, Scotland with his wife Lisa, and their three wonderful children. As a senior editor for various publications, if he's not reading and writing, you would find him photographing and traveling to some of the most far-flung locations around the world.


Tags: , , , , , , , , ,

EconGuru Economics Guide

Educating the public since 2006.

As an Amazon Associate, EconGuru earns from qualifying purchases.