Liability insurance - Covered in all areas of life

Liability insurance - Covered in all areas of life
Patrick Ott
Martina Martinez
Expert for insurance and finance
22. May 2023

Whether in private or professional everyday life - even minor carelessness and oversights can have serious consequences. If you forget to turn off your stove or cross a street in your mind and overlook a cyclist, serious damage can occur. You have to pay for these. In such cases, your liability insurance relieves you of the burden of existentially threatening claims for damages and bears the costs of third-party liability claims. Find out now what other benefits your liability insurance provides, for which areas you can take out insurance and when it is mandatory.

What is liability insurance?

Liability insurance is damage insurance for which an individual insurance contract is concluded between the policyholder and an insurance provider.

The purpose of liability insurance is to defend against unjustified claims for damages by third parties against the insured or to assume justified claims for damages against the insured.

When does liability insurance pay out?

Your liability insurance compensates for damage you cause to third parties. It protects you financially against claims for damages from other people or companies and pays for them if they are justified. In principle, liability insurance covers the following types of damage:

  • Property damage: This includes damage that you cause to objects that belong to others.
  • Personal injury: This is damage that you cause to the body or health of another person. The insurance compensates such damages financially by paying compensation for pain and suffering or by covering treatment and household expenses.
  • Financial losses: These are losses that occur because your behavior causes a financial disadvantage to third parties. A typical pecuniary loss can be, for example, a loss of earnings caused by your behavior.

Note, however, that there is no liability insurance that will financially compensate all types of damages you cause to third parties. Rather, there are different types of liability insurance for specific areas of life and different purposes. The insurances only pay if a damage occurs in connection with the agreed insurance purpose.

What types of liability insurance are there?

Many different types of damage can occur at work as well as in everyday life. Accordingly, there are different types of liability insurance that cover different types of damage. What all insurances have in common is that they only pay for damages that you unintentionally cause to others within their area of responsibility.

Overall, the different types of liability insurance can be divided according to their area of responsibility. On the other hand, a distinction can be made between voluntary liability insurance and compulsory liability insurance:

Liability insurance for risks in the private sphere

  • Private liability insurance to cover liability risks in everyday life as a private person
  • Motor vehicle liability insurance to cover damage caused by the use of a motor vehicle
  • Pet owner liability insurance to cover special liability risks of pet owners (dogs, horses or other large pets)
  • Homeowner's and landowner's liability insurance to cover liability damages that occur in the area of one's own house or property
  • Hunting liability insurance, which covers damages that occur during hunting activities
  • builder's liability insurance to cover liability damages in connection with the implementation of construction projects
  • Business and professional liability insurance
  • Professional liability insurance, which covers damage caused to third parties in the professional environment. Professional liability insurance is available, for example, for doctors, architects, lawyers or civil servants (official or official liability insurance).
  • Public liability insurance to cover damage caused by companies. Business liability insurance is available, for example, in the form of commercial and industrial liability insurance.

Compulsory liability insurance

These insurances must be taken out by everyone who exercises a corresponding profession or drives a motor vehicle

  • Motor vehicle liability insurance
  • Professional liability insurance for lawyers
  • Professional liability insurance for insurance agents and insurance consultants
  • Caregiver liability
  • Dog liability insurance (only in some federal states)

When does the insurance not pay?

When you take out a liability insurance policy, your insurance contract specifies in which cases insurance coverage is available and for which types of damage the insurance will pay. Depending on the type of liability insurance, the insured types of damage can be quite different.

However, what all liability insurance policies have in common is that they do not cover damage that is

  • are intentionally caused by the insured person or representatives of the insured company
  • claims between family members living in the same household
  • give rise to claims between the insured person and his legal representative
  • arise from third-party property which the policyholder actually owns on the basis of rent, loan, lease, leasing or similar. However, an exception is usually made for rented apartments. Rental damage is covered by most private liability insurance policies.

Liability insurance comparison: Who needs liability insurance?

Most liability insurance policies are taken out voluntarily to protect you against certain financial risks. Mandatory liability insurance is only required in a few areas of life that are classified by law as particularly risky.

But remember: If you cause damage to another person, you are liable for the financial consequences with all your assets. Private liability insurance in particular, which covers all damage caused in private everyday life, is therefore important for everyone. The insurance protection gives you security and can save you from financial ruin under certain circumstances. The same applies to special pet owner liability insurance if you have a dog. After all, even the most agreeable four-legged companion can cause great damage if it injures a third party while playing or breaks loose in traffic.

If you run a business or are self-employed or freelance, a business or professional liability insurance makes sense for you. Like all other liability insurance policies, you take out this insurance in your own interest. However, liability insurance also serves a social purpose and guarantees appropriate compensation to people and companies who are harmed through no fault of their own. It does not matter whether you yourself are solvent or not.

Canceling liability insurance

You usually take out liability insurance for one or more years. However, the Insurance Contract Act (VVG) limits the minimum contract term to a maximum of three years. After the minimum contract period, the contract is automatically renewed. However, you can cancel it with a notice period of usually three months before the expiration date.

If there is an increase in premiums, you have an extraordinary right of termination. In this case, the notice period is one month from receipt of the premium increase.

Regardless of the contractually agreed minimum term, the insurance contract can be terminated by either party after a settled or rejected claim. The notice period is then - depending on the agreement - usually four weeks.

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