Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Liability insurance pays out if you’re financially responsible for injuring a person or damaging their property. It protects people and businesses from lawsuits from a third party, whether that be for damage after an at-fault crash or a faulty product shipped out from a business.
Liability coverage can be found in both personal and business insurance policies. Here are the liability insurance definitions for five common coverage types.
Liability car insurance definitions
If you’ve ever bought a car insurance policy, you’ve probably come across the liability coverage section in your policy.
An auto insurance policy’s liability coverage will pay for other people’s medical bills and property damage, up to your policy limits. But it won’t cover your own medical bills, which is why it’s important to know what different types of car insurance cover.
Many states only require drivers to have liability insurance, so you might wonder if you can drop other coverage types on your policy. NerdWallet recommends avoiding liability-only car insurance if possible. While it will lower the cost of your insurance premium, it will also put you at greater financial risk if you are ever involved in an accident.
Below are liability car insurance definitions for the two common types of coverage:
Sometimes auto insurance liability limits aren’t high enough to cover the damage you might cause in an accident. In that case, an umbrella insurance policy, if you have one, would provide additional liability coverage above your auto insurance policy’s liability limits.
Liability definitions for different types of business coverage
If you’re a small-business owner, you’ve likely purchased liability coverage to protect your operation. Below are some common types of business liability coverage and what they cover:
General liability insurance covers legal costs if your business harms or is accused of harming another person or their property.
Professional liability insurance covers legal and settlement costs due to lawsuits from dissatisfied customers over issues like negligence or copyright infringement.
Product liability insurance financially protects a business if the company’s product causes physical injury or property damage.