People Already Have Some Sort of Liability Insurance
If you drive a car, and you are insured, one of the things that is always offered with car insurance is liability coverage, and it’s actually an important component of it. This is the coverage that is generally mandated by law, mostly due to wanting to have people on the road protected in case of injury, but to also have their property protected if you are found at fault in an accident and do harm to other persons or cause damage to other people’s property.
In such circumstances, you may indeed be sued, and you want to make sure that your liability coverage is sufficient. Now this may pertain to your net worth and your financial exposure, and therefore there may be many people who simply don’t care about this, being to one degree or another judgement proof, meaning that they simply don’t have the means to pay high amounts, or in some cases even more modest ones.
So by making this mandatory, this takes this consideration out of the equation, but it still remains in cases where one is considering adding additional liability insurance.
In the case of home insurance, homeowners do have some assets at least, the equity in their home at a minimum, and one should look to protect this to some degree, which is why liability insurance is included in home insurance policies generally. If someone gets injured on your premises, this will provide at least some protection for you against this.
These coverages only protect you in these specific circumstances though, at home or while driving your car. Some people seek further protection, and insurance companies are always happy to fulfill all reasonable requests for insurance, and in this case this is generally called umbrella insurance.
So think of this as an umbrella over you, extending your coverage to not just at home or in your car but everywhere you go. Umbrella insurance also extends the limits of coverage of these other policies, providing further protection and peace of mind over and above what most people enjoy.
While most people don’t get too concerned about this, a lot of people who should don’t purchase this coverage, and the more assets you have to protect, and the more likely it is that you may be faced with a lawsuit, the more you need this type of umbrella liability coverage.
Liability Insurance Is Critical in Business
While liability insurance does not play as prominent a role as some other forms of insurance where personal coverage is concerned, it plays a huge role in the world of business, mostly because there is generally much more to protect.
There are a number of different types of business liability insurance. There is liability insurance to cover potential claims by employees, especially if they get injured at the workplace.
Product liability insurance covers harms that may arise from using a company’s products, regardless of the cause. Businesses also obtain various other forms of liability insurance to ensure that they are covered against all foreseeable liabilities.
Commercial liability insurance is by nature more comprehensive than personal liability insurance, because a company is looking to protect itself from all harms caused by its agents, whether or not they be reckless or intentional, and insurance companies willingly offer these policies for a fee.
The reason is that if one is looking to be covered for their own acts, insurance companies can rightly put restrictions on this, as the insured here can abide by reasonable standards of care. With a company, they may be doing so but their agents may not, and their level of control and foresight is limited here.
So using the example of someone digging a hole in their lawn and someone falling in and becoming injured, we can place the blame on that person but if an employee does this we can’t generally blame the company, and therefore commercial liability coverage tends to be more of a blanket policy to protect against liability generally.
This includes all forms of errors and omissions, negligence, and even claims brought due to a company’s failure to perform their obligations.
A good example of this would be a professional malpractice insurance. These people make mistakes and they don’t want to be held liable, and malpractice by definition is a failure to perform, but if they weren’t covered they may not want to practice at all, or have to stop practicing if claims are successful, so insurance is provided to them for this.
There are enough risks in doing business that are not avoidable to want to add liability risks to the equation, and therefore businesses aren’t just willing to pay for this type of coverage, it is pretty much essential to their successful operation.
Principals of corporations will also purchase specific liability insurance to indemnify themselves against potential claims made against them. Even though the company may be a corporation, and limitations on liability is an essential component of corporations, it is still wise to purchase additional coverage to completely eliminate this risk.
It is not that unusual for principals of corporations to be named in certain suits against companies, for instance suits involving securities claims, or claims of recklessness management, where it may be held that the parties named participated directly in the acts causing the harm, and these people do not want to have their personal assets exposed here, so they can protect them with additional insurance.
It’s Always About Having The Right Amount of Coverage
Insurance coverage does cost money, and the more coverage you have, the more you will pay. Not having enough coverage though has potential economic consequences that can range from difficult to disastrous, so it’s also important to make sure that you have enough or as much coverage as you can afford.
Perhaps the most important thing to keep in mind here is what you are actually looking to protect, which is your current assets, protecting them from being lost due to legal actions and judgements. This may include present and even future assets.
So the more you have and the more you expect to have, the more protection you need, plain and simple. People do need to be aware though that you can indeed overprotect yourself here, and those of more modest means generally only need modest protection, and those of little means may not be justified in buying any protection over and above what people get with normal insurance policies.
If your goal though is to accumulate wealth over time, which even may be as simple as providing a nice nest egg to live comfortably in retirement, than reducing the risk that this may be lost due to liability claims is certainly worth looking at.
Once again, this is especially the case if lawsuits are common in your country, and in some countries, large settlements are quite rare, especially ones brought against persons, over and above what already would be covered by normal insurance, like auto and home policies.
In cases like this, the insurance companies are well aware of this and all the risks involved, and will price that into their premiums, so this still may be worth a look if you do have a significant amount of wealth you’d rather not lose to these risks.