Liability Insurance Definitions for 5 Common Coverage Types

There are different types of liability coverage, but all of them pay out if you’re financially responsible after an accident or lawsuit.
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Written by Drew Gula
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Edited by Ben Moore
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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.

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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.

🤓Nerdy Tip

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:

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