• Liability insurance provides third-party insurance coverage in polices like auto insurance.off-road vehicle image by goce risteski from Fotolia.com
  
  In a litigious society, an individual stands the risk of losing valuable assets if he is sued as the result of a negligent act. This is where liability insurance can play an important role. Liability insurance will pay for damages awarded to a third party due to the policyholder's negligence. Liability insurance is available for personal and business needs.
  
  

Bodily Injury

• Bodily injury liability coverage pays for injuries sustained by a third party. A common example occurs in automobile insurance where this coverage will pay for injuries suffered by the other driver when the policyholder is at fault in an accident. Bodily injury protection can also cover punitive damages that may be awarded by a jury, such as for pain and suffering.
  
  

Property Damage

• Property damage pays for damages sustained to the property of a third party. Using the auto insurance example, the property damage would pay to repair or replace the other driver's vehicle when the insured is deemed at fault in an accident. It is also used in commercial insurance to protect against occurrences like when a contractor causes damage to a customer's home when making home improvements.
  
  

Professional Liability

• Professional liability insurance pays for damages that result from services rendered or from oversights or omissions. A common example is malpractice insurance in the medical field that protects a physician if she misdiagnoses a condition or renders improper treatment. Insurance agents take out errors and omissions coverage to protect them if they give improper or misleading financial advice to clients.
  
  

Product Liability

• Product liability coverage is often taken out by product manufacturers to protect them in the event their products cause injuries or damage. Toy manufacturers need this coverage in case a child is injured while playing with their products. Pharmaceutical companies use product liability coverage to protect them from lawsuits if a user becomes ill.
  
  

Excess Liability

• In some cases, the limits offered under a primary liability policy may not be high enough, especially if the policyholder owns a large amount of assets that he could lose if he is sued for negligence. An excess liability policy will pick up where the primary policy leaves off. A common example is the personal umbrella policy, which goes into effect when the liability limits on an auto or homeowners policy are exhausted.