Insured liability is the amount of money an insurance company agrees to pay on behalf of the insured party if they are held legally responsible for causing harm or damage to someone else or their property. It is also known as coverage, liability, or policy limits. It is an important aspect of liability insurance, which protects the insured party from the financial consequences of being sued for negligence or wrongdoing.

How Insured Liability Works

Insured liability works by setting a maximum amount the insurance company will pay for each claim or occurrence or the entire policy period. The insured party can choose the amount of insured liability when they purchase the policy, depending on their needs and budget. The higher the insured liability, the higher the premium, and vice versa.

It can be expressed in different ways, depending on the type and structure of the policy. Some of the common ways are:

Per occurrence limit: This is the maximum amount the insurance company will pay for each claim or incident, regardless of the number of people or properties involved. For example, suppose the insured party causes a car accident that injures three people and damages two cars. In that case, the insurance company will pay up to the per occurrence limit for the total cost of the injuries and damages, not for each person or car separately.

Aggregate limit: This is the maximum amount the insurance company will pay for all the claims or incidents during the policy period, usually one year. For example, suppose the insured party causes multiple car accidents during the year. In that case, the insurance company will pay up to the aggregate limit for the total cost of all the injuries and damages, not for each accident separately.

Split limit: This is a combination of per occurrence and aggregate limits, where the insurance company sets different limits for different types of claims or damages. For example, suppose the insured party causes a car accident that injures one person and damages one car. In that case, the insurance company may pay a certain limit for bodily injury and another limit for property damage, not exceeding the per-occurrence limit or the aggregate limit.

Why Insured Liability Matters

It matters because it determines how much protection and peace of mind the insured party has if they are sued for causing harm or damage to someone else or their property. If the insured party has a high insured liability, they can be confident that the insurance company will cover most or all of the costs of the claim. However, suppose the insured party has a low insured liability. In that case, they may be underinsured, which means that the insurance company will not cover the full cost of the claim, and they will have to pay the difference themselves. This can be financially devastating, especially if the large claim involves multiple parties or properties.

Conclusion

Insured liability is the amount of money an insurance company agrees to pay on behalf of the insured party if they are held legally responsible for causing harm or damage to someone else or their property. It is an important aspect of liability insurance, which protects the insured party from the financial consequences of being sued for negligence or wrongdoing.