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.

Drew Gula
Lead Writer | Auto insurance

Drew Gula is a NerdWallet authority on auto insurance. He previously worked as the senior content editor at Soundstripe and as the senior writer in Liberty University's marketing department. Drew is also a published author. He is based in Nashville, Tenn.

Ben Moore
Assistant Assigning Editor | Auto insurance

Ben Moore is an assistant assigning editor and spokesperson who joined NerdWallet as a writer in 2020. An auto insurance authority, his past work has been featured in The Associated Press, The Chicago Sun-Times, MarketWatch, Nasdaq and Yahoo News. Ben has been quoted in Martha Stewart and Real Simple magazine, and he has appeared on local broadcast television. He is based in Nashville, Tennessee.

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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.

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:

Property damage liability coverage pays out if you damage another person’s car or property in a crash in which you’re at fault.

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.

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Drew Gula is a NerdWallet authority on auto insurance. He previously worked as the senior content editor at Soundstripe and as the senior writer in Liberty University's marketing department. Drew is also a published author. He is based in Nashville, Tenn. See full bio.

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