Liability insurance covers costs associated with accidents you cause, like legal fees or damage to property. It also pays for expenses if someone is injured on your property, such as medical bills or funeral costs.

Commercial general liability policies (CGL) usually have several different coverage limits, often written as three numbers, such as 25/50/10. These numbers represent the maximum amount per person that the policy will pay for bodily injury or property damage.

Bodily Injury

Bodily injury coverage, a part of liability insurance, pays for the medical costs associated with injuries to other drivers and passengers in an accident that you cause. This includes emergency care, hospital charges, follow-up visits and medical equipment, like wheelchairs or crutches. It also covers lost income if the injured person can no longer work and funeral costs, if necessary.

Many car insurance policies include limits for bodily injury in the form of two numbers, such as “100/300.” The first number represents the maximum amount that your policy will pay per person injured in an accident that you cause. The second number is the total amount your policy will pay for all injuries that occur in a single accident.

Many states require car owners to carry this type of liability coverage, although some allow drivers to waive it if they have significant savings. Regardless of the law in your state, it’s important to understand that waiving bodily injury coverage can have serious consequences if you are ever involved in an accident.

Property Damage

Property damage coverage, which is a subset of general liability insurance, pays for harm to tangible property belonging to a third party. For example, if you were cleaning a customer’s carpet and accidentally ripped it or knocked over a lamp, this is considered property damage. Similarly, if you or your employees cause damage to another person’s car while driving their vehicle—say, you swerve to avoid a deer and crash into their fence, a telephone pole or their house—this is covered by property damage liability.

This type of liability insurance typically has a limit per accident that is set by the state, and if damages exceed your limits, you may be personally responsible to cover the remaining cost. For this reason, it is a good idea to get more coverage than your state requires, which doesn’t usually increase the premium very much. You can also buy property damage liability separately from a car insurance policy as an add-on.

Medical Payments

Also known as MedPay, this coverage reimburses you and other insured people on your policy for reasonable medical expenses related to an accident, regardless of who’s at fault. It’s often included in auto liability insurance policies, as well as in commercial general liability (CGL) and homeowners policies.

TGSI Tip: While many homeowners choose to carry lower limits of this coverage, we recommend that you consider increasing it as much as possible. The reason is simple: the liability section of your policy — which includes both personal liability and medical payments to others coverage — usually provides the biggest bang for the buck. So opting for the maximum coverage amounts doesn’t cost you much more than choosing the minimum.

Other types of liability insurance include professional liability insurance for wrongful acts by professionals such as doctors and lawyers, product liability insurance for manufacturers, directors and officers liability insurance that covers business leaders, and miscellaneous errors and omissions (malpractice) insurance for a wide variety of services.

Legal Defense

In addition to paying claims for bodily injury, property damage and medical payments, liability insurance covers the cost of legal defense. This is important because litigation is costly and unpredictable.

Some policies contain “duty-to-defend” language, which gives the insurer the right and obligation to defend any claim regardless of its merits. This type of policy is usually found in professional liability, directors & officers (D&O) and employment practices Liability (EPLI) insurance.

However, this approach limits the insured’s control over the litigation and may result in significant costs for the insurer. The insurance marketplace also offers indemnity/reimbursement or non-duty-to-defend policies.

Under this type of policy, the insurance carrier must pay the insured’s defense costs directly from its treasury until the separate defense limit is exhausted. This approach reduces the amount of the available liability limits or insurance protection, which can create an exposure to uninsured damages or loss. In these cases, a law firm that specializes in insurance defense is often hired. assurance rc

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