- Liability insurance pays for damage you cause to another person's car.Driendl Group/Photodisc/Getty Images
You likely have several different kinds of liability insurance on your existing insurance policies, but you may not know what they cover or how important they truly are. Liability coverage is found on all auto and standard homeowner's insurance policies, and many people choose to increase their liability protection with an umbrella policy as well. While this is not property coverage, and does not pay to replace your damaged items, it may nonetheless save you from serious financial hardship. - Liability insurance pays for economic damages you cause to another person or his property, subject to the exclusions in your policy. Auto insurance, for example, pays for injuries and damages you cause with your vehicle, while homeowner's insurance pays for injuries that occur on your property. Different types of insurance have liability coverage designed to protect against circumstances specifically related to that type of insurance. Accordingly, landlord insurance pays for costs related to the business of being a landlord, while these expenses are not covered by standard homeowner's insurance.
- Every insurance company is typically permitted to write its own policies and set its own exclusions, so always read your policy to know what it covers and what it does not. Common auto insurance liability exclusions are those related to business use of the vehicle and racing. Common homeowner's insurance exclusions include any damages that you cause in a motorized vehicle and those caused by roommates or tenants from whom you collect rent.
- Auto and homeowner's insurance policies have a maximum amount of liability coverage they offer, but these maximums may not adequately protect your family's assets if you are sued as a result of your negligence. An umbrella insurance policy provides excess liability above that provided by the underlying auto and home policies. If your auto insurance provides half a million dollars of liability protection, and you purchase a $1 million umbrella policy, you have a total of $1.5 million of auto liability protection as a result.
- Unless you specifically endorse your auto or homeowner's insurance policies to cover business use, they will not protect any business venture you have. You must separately purchase business liability insurance from a commercial insurance agent. If you are a professional of certain specialized fields such as a lawyer, doctor or insurance agent, you may also have to purchase professional liability coverage, such as malpractice or errors and omissions insurance.
