The Insurance Bulletin
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What is Liability Insurance?

Liability insurance policy

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Catherine Hiles
Updated November 2, 2022
4 Min Read

Liability insurance is a type of coverage that helps protect you from having to pay out of pocket if you’re found liable for an accident or injury. Without liability insurance, you would have to foot the bill for things like medical and legal bills if someone is injured on your property or as a result of an accident you caused.

Types of liability insurance

There are several different types of liability insurance, the most common being home, auto, and renters liability insurance. The other types of liability insurance are condo, business, landlord, boat, motorcycle, ATV, and snowmobile liability insurance.

Here, we will look at these three main types, as well as personal umbrella insurance.


When you take out a homeowners insurance policy, there are several types of coverage you can choose, including liability coverage.

Home liability insurance covers you if a guest injures themselves while on your property. If the injury is serious enough or the guest sues and you’re found liable for the incident, you could be held accountable for paying their medical bills and more.

For example, if your guest falls when walking down your steps and it’s found that the steps were in a state of disrepair, it’s likely you would be found liable. If you knew that the steps were a hazard and didn’t repair them, it was just a matter of time before someone injured themselves. And if you had repaired the problem, then it’s likely the person wouldn’t have fallen and injured themselves while at your home.

But even if you diligently keep up with home repairs, it’s still important to have liability coverage on your homeowners insurance policy. Even if the injury was caused by an accident, you could still be found liable and be made to pay damages. With liability insurance, you wouldn’t have to worry about how to pay those costs because your coverage should take care of it for you.


You may also have liability coverage as part of your auto insurance. In fact, most states require motorists to carry liability coverage as part of their policy. Even if your state doesn’t require it, it’s still a good idea to get the coverage to be safe.

Auto liability coverage can help protect you if you are found at fault for an accident that resulted in injuries to another person. This type of coverage is called bodily injury liability coverage. The injured person may sue you for damages to help cover their medical bills, and liability coverage helps pay those costs so they don’t have to come out of your pocket. 

It can also protect you if someone sues you because an accident you caused damages their property. This type of coverage is called property damage liability coverage. Typically, this refers to damage to the other party’s car caused by an accident. Liability insurance helps pay to repair that person’s car so they and you don’t have to pay out of pocket. But it can also cover damage to other property (for example, if you knock over someone’s mailbox or drive into their house and cause structural damage). 


Even if you only rent your home, it’s still a good idea to have liability coverage as part of your renters insurance policy. If a guest were to injure themselves while inside your apartment or rental home, they could sue you for damages to help cover medical and other bills. Liability insurance helps pay for these bills.

Personal umbrella policy

In addition to your liability insurance, it’s a good idea to take out a personal umbrella policy. This type of insurance helps cover anything additional that your other coverages may not.

A personal umbrella policy is a type of insurance coverage that can help protect you against liability in a variety of situations, no matter the type of insurance. For example, if you cause a car accident that injures someone, your auto liability insurance will top out once the medical and other expenses reach the policy limit. The personal umbrella policy would then step in and cover any expenses that exceed your auto insurance coverage amount, so you don’t have to pay those costs out of pocket.

Similarly, if someone is injured in your home and their medical bills are higher than your homeowners policy limit, your personal umbrella insurance would help cover those additional costs rather than you having to look for that extra money elsewhere.

Why do you need liability insurance?

Liability insurance can protect you in a variety of situations that result in someone getting injured. Making sure you have liability insurance is a smart move to help protect you from financial burden if someone sues you for an injury that occurred at your home or because of your vehicle.

Additionally, some providers require you to have liability insurance. For example, most states require drivers to have liability insurance in order to legally drive.

How much liability insurance do you need?

Like with other types of insurance coverage, you can determine your coverage limit when you sign up, and make changes to your coverage as you need to. For auto insurance, your state will determine the minimum amount of coverage you should have by law, and you’ll need to take out at least that much, and more if you can swing it.

When determining how much liability insurance coverage to sign up for, you need to take a few things into account. First, if someone sued you for damages caused by your negligence, would you be at risk of losing your home in order to pay? If so, you should consider a higher limit to make sure you’re covered.

It’s also important to note that some states will garnish your wages to cover the medical expenses of the person who sued you. Having a higher coverage limit on your liability insurance will help ensure that doesn’t happen.


Liability insurance is a smart type of coverage to have as part of your home and auto policy. It can help pay for expenses if you’re found liable for damages due to someone being injured at your home or by a car accident you caused. Most states even require auto liability insurance in order to drive legally. That’s why it’s important to look at your options for coverage to find out which one works best for your budget and requirements.