What Is Liability Insurance?

by COUNTRY Financial

Liability insurance protects you if you’re found legally responsible for injuring another person or damaging their property. It shields you from the bulk of the financial burden of medical or repair costs if the injured party brings a lawsuit against you.

In other words, liability insurance doesn’t directly protect your body or your property—it protects you from paying high legal fees for damage you cause to others.

Liability insurance takes two forms, as it’s included in many standard auto and home insurance policies: 

• In auto insurance, it’s called auto liability coverage.

• In home insurance, it’s called personal liability insurance.

In this article, we’ll discuss what liability insurance covers as it relates to both car and home insurance.

Auto liability coverage

Auto liability insurance coverage is extremely common in car insurance policies. In fact, you can’t legally drive without it in most states. 

Liability car insurance protects you if you cause an accident that hurts someone else or damages their property. If you’re found at fault in an accident, there are two types of liability insurance that can help:

1. Bodily injury liability covers medical expenses for other drivers or passengers.
2. Property damage liability covers damages to another person’s car or other property, such as a light pole or deck.

As mentioned, most states require auto liability coverage—if you’re shopping for new car insurance, start by comparing liability coverage.

Personal liability coverage

Personal liability insurance coverage is a part of home insurance that protects you if someone is injured on your property. If someone slips and falls, for example, and sues you for medical expenses, personal liability coverage can help protect you from exorbitant legal fees.

It can also protect you from legal and repair fees if you cause damage to another person’s property. Even if you’re found legally responsible for the damage, your own personal liability coverage can help protect you.

It’s important to note that personal liability coverage is different from property damage liability coverage in auto insurance, which we mentioned above. They both involve property, but personal liability coverage has nothing to do with cars or car accidents.

What does liability insurance cover?

To recap, here’s what liability insurance covers as it relates to both auto and home insurance:

• Auto liability coverage (included in car insurance): Protects you from costs related to injuries you cause to someone else or damage you cause to their property.

• Personal liability coverage (included in home insurance): Covers other people’s injuries that occur on your property, or damages to another’s home that you cause.

What does liability insurance not cover?

Liability insurance does not cover your own injuries or damaged property. It’s about protecting you from the repercussions of damages you caused to others.

If you cause a car accident that injures another person and destroys their car, for example, your liability insurance would help pay for their medical and repair fees. To cover your own damages, you’d need something like personal injury protection for yourself, and collision coverage (or even comprehensive coverage) for your car.

How much liability insurance do I need?

You’ll select a coverage limit when you purchase auto liability coverage or personal liability coverage. 

For auto insurance, you should start by reviewing your state’s minimum requirements first because, as mentioned above, most states require it. For home insurance, coverage amount should generally be a function of your total net worth so you’re fully protected.

For more about choosing coverage limits, check out our dedicated articles covering liability car insurance and personal liability insurance.

Is liability insurance required?

There are two answers to this question, since liability insurance applies to both auto and home insurance polices:

• Auto liability insurance: Almost every state requires drivers to carry auto liability insurance. You can’t legally drive without it.

• Personal liability insurance: No states require it, but many mortgage lenders do. It’s smart to have in case someone is injured on your property and decides to initiate a lawsuit.

If you’d like to know more about liability insurance coverage, talk to your insurance agent today—they can help you determine how much coverage you need and answer any questions.

Updated 10-24-24