What Is Liability Insurance?

Q: How Does Liability Insurance Work?

Liability insurance policies help protect you or your business from a covered loss. When a loss occurs during your policy period, you file a claim with your insurance company. If it’s a covered cause of loss, your liability policy helps cover your claims costs.

Q: Do I Need Liability Insurance?

Nearly all states require auto insurance, which includes liability insurance to protect you if you injure another party or cause property damage in an accident. Mortgage lenders often require liability coverage in a homeowners insurance policy, and some landlords may require liability insurance in a renters insurance policy.

Q: How Much Liability Insurance Do I Need?

When selecting your coverage limits, determine what assets you want to protect, such as your home, savings, and investments. It is recommended to select a coverage limit that matches or exceeds your net worth to ensure you have enough coverage to protect your assets if someone sues you.

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Key Takeaways

Liability insurance helps protect individuals and businesses if they’re legally responsible for injuring someone or damaging their property.
This coverage typically pays for other people’s losses, such as legal defense costs and certain covered damages, subject to policy terms and limits.
Liability coverage is available for personal, business and auto insurance policies, and coverage options can be tailored to different risks and needs.

What Is Liability Insurance Coverage?

Liability insurance is a type of coverage that helps protect you and your business financially if you’re found legally responsible for hurting someone else or damaging their property. Liability insurance coverage is commonly included in auto, business and property insurance policies and can be tailored to fit different industries, risks and situations.

Who Does Liability Insurance Cover?

Liability insurance generally covers losses experienced by other people or parties — not damage to your own property, or injuries to you or your employees. If someone gets hurt on your property, or you accidentally injure someone or damage their property, this coverage may help. It can help pay for certain related expenses, such as legal costs, medical bills and repair costs, depending on the policy and situation.

What Is Not Covered by Liability Insurance?

Liability insurance does not cover damage to your own property or injuries to you or your employees. It also generally does not apply to intentional acts, employee injuries covered by workers’ compensation, or claims related to professional errors or auto accidents unless you have specific coverage for those risks. Keep in mind that coverage details and exclusions vary based on the terms of your policy.

Types of Liability Coverage

Liability insurance can be defined as either business or personal:

Business Liability Insurance

As one of the most essential types of small business insurance, business liability can help cover claims that your business caused bodily injury or property damage to someone else or their belongings. Certain endorsements may cover claims related to professional services.

Personal Liability Insurance

This type of coverage helps protect you financially from damages or injuries to other parties that happen in personal situations. For example, personal liability insurance can help protect you if someone gets hurt while on your property or in your home. This coverage is included in homeowners and renters insurance policies.

In auto policies, bodily injury liability insurance helps pay for medical bills resulting from a car accident you caused. Property damage liability coverage helps pay for repairs from an accident you caused and for which you’re found legally liable.

Commercial Umbrella Insurance

Commercial umbrella insurance is a type of business insurance that provides extra liability coverage when the limits of certain liability policies are reached. In simple terms, it helps cover larger claims that cost more than what your other business insurance policies will pay for.

What Is Liability Insurance vs. Full Coverage?

In car insurance, liability insurance pays for injuries or property damage you cause to other people in an accident, but it doesn’t cover damage to your own car. Full coverage car insurance usually includes liability insurance plus collision and comprehensive coverage. It can help cover damages to your vehicle from accidents, theft or weather-related events.

male small business owner protected by knowing what is liability insurance coverage

How Does Liability Insurance Work?

Depending on the type you have, a liability insurance policy helps protect you or your business from a covered loss. These policies work when:

A loss occurs during your policy period
You file a claim with your insurance company
You have a covered cause of loss

It’s a good idea to review each liability insurance policy you have and ensure you understand how it works. Policies may have a list of exclusions (losses that are not covered).

How Much Liability Insurance Do I Need?

The amount of liability insurance your small business needs depends on several factors. There isn’t a single answer that fits every business, but understanding what influences coverage amounts can help you make a more informed decision.

Factors that can affect how much liability insurance you need include:

Industry and risk level: Businesses in higher‑risk industries or those with more public interaction may face a higher chance of claims occurring, which can affect how much coverage is appropriate.
Business size: Larger businesses or those with more employees, customers or revenue may have more exposure to liability claims.
State requirements: Some states have minimum insurance requirements that can influence the type and amount of coverage you carry.
Location: Where your business operates can affect risk factors such as local laws, claim trends or the cost of damages.
Budget: Your budget can play a role in balancing coverage limits with what your business can reasonably afford while managing risk.

Liability Insurance Minimums and Mandatory Requirements

Your state may have minimum liability insurance requirements for car insurance policies. State car insurance laws vary, but you’ll likely need to have minimum coverage for:

Bodily injury liability
Property damage liability

For business liability insurance, coverage is not typically required by state law. However, many businesses still choose to carry it because clients, landlords, vendors or government agencies may require proof of liability insurance as part of a contract, lease or project agreement.

Coverage needs can vary based on factors such as:

Your claims history
Your location
Your industry and type of business
How long you’ve been in business

An insurance provider or specialist can help you understand your local laws and common requirements for your industry. This information can help you choose the best coverage options that align with your business needs and obligations.

Liability Insurance Restrictions and Exceptions

Liability insurance helps cover third-party claims of loss, property damage or bodily injury. These policies don’t provide coverage for the policyholder. For example:

Bodily injury liability coverage won’t help cover your medical bills or lost income if you get hurt in a car accident that you caused. You’ll need personal injury protection (PIP), also known as no-fault insurance, to protect you in these situations.¹
Property damage liability insurance won’t help pay to repair your car if it’s damaged in an accident for which you’re held liable. Collision coverage can help you with this kind of claim.
General liability insurance won’t help a business owner if their employees get hurt on the job. It also won’t help cover repair costs if business property they own is damaged. Instead, business owners will need workers’ compensation insurance and commercial property insurance, respectively.
Liability policies don’t cover intentional acts or criminal actions.

It’s important to review your insurance policy on a regular basis. You'll want to ensure you understand the exclusions and limitations of your policy.

female and male small business owners protected by liability insurance from The Hartford

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We’re a property and casualty insurance company with more than 200 years of experience. Whether you’re looking for business insurance or personal liability coverage, our specialists can help you explore options that fit your needs. Get your price to see coverage options available to you.

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Frequently Asked Questions About Liability Insurance

Do I Need Liability Insurance?

Nearly all states require you to have auto insurance, which includes liability insurance. This helps protect you if you injure another party or cause property damage in an accident.

Not all states require you to have personal liability coverage, which helps protect you if someone is injured on your land or property. However, mortgage lenders often require liability coverage in a homeowners insurance policy. In addition, most landlords require tenants to have a renters insurance policy, which includes liability coverage.

What Is Umbrella Insurance?

Umbrella insurance provides additional financial protection by extending the limits of certain liability insurance policies for certain covered claims. For businesses, commercial umbrella insurance can help cover costs that go beyond those limits, such as legal expenses, medical bills or property damage claims.

How Much Does Liability Insurance Cost?

The cost of liability insurance can vary based on factors like your industry, location, coverage limits and risk level. On average, The Hartford’s small business customers pay about $68 per month, or $810 per year, for general liability insurance.** Keep in mind that riskier industries can expect to pay more for insurance. Also, larger companies typically will pay higher premiums, because they employ more people and have more complex operations.

Does an LLC Need Liability Insurance?

An LLC is not usually required by law to carry liability insurance, but many choose to have it to help manage financial risk. In some cases, clients, landlords or contracts may require proof of coverage.

When Should a Business Get Liability Insurance?

A business may consider liability insurance as soon as it starts operating, especially if it interacts with customers or the public. Having coverage in place early can help address potential claims as the business grows.

What Does General Liability Cover?

How Much Is Liability Insurance for a Business?

Understanding Liability Risk

¹ PIP insurance coverage is not available in all states.

** Costs, premiums, and coverages mentioned are estimates and are not guaranteed. Actual cost, premium, and coverage are determined at the time of quote or issue and are specific to an individual risk. Premiums are based on information provided to The Hartford, including, but not limited to, underwriting and rating criteria. All examples included on this website or in an advertisement are intended for informational purposes only and are not an offer or a guarantee of premium or coverage. Coverage and products described are subject to the terms and conditions found in the policy contract. Any educational information provided about available coverages does not modify the policy language or imply that any claim is covered. Products are not available in all states or for all businesses.

This page outlines in general terms the coverages that may be afforded under a policy from The Hartford. All policies must be examined carefully to determine suitability for your needs and to identify any exclusions, limitations or any other terms and conditions that may specifically affect coverage. In the event of a conflict, the terms and conditions of the policy prevail.

All Hartford coverages and services described on this page may be offered by one or more of the property and casualty insurance company subsidiaries of The Hartford Insurance Group, Inc. In Arizona, California, New Hampshire, Texas, and Washington by Hartford Fire Insurance Company, Hartford Casualty Insurance Company, Hartford Accident & Indemnity Company, Hartford Underwriters Insurance Company, Twin City Fire Insurance Company, Pacific Insurance Company, Limited, Sentinel Insurance Company, LTD (CA license #8701), Hartford Lloyd's Insurance Company, Hartford Insurance Company of Illinois, Hartford Insurance Company of the Midwest, Trumbull Insurance Company, Hartford Insurance Company of the Southeast, and Property & Casualty Insurance Company of Hartford and its property and casualty insurance company affiliates, One Hartford Plaza, Hartford, CT 06155.

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