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Liability cover is a type of insurance policy. A liability is anything you are responsible for. Insurance is a promise to compensate a person for potential future losses. The person pays a fixed amount of money for this promise periodically. The company giving the promise is called an insurer. The individual paying for this promise is called the insured person.
There are many forms of insurance. Some are statutory while others are optional. A person seeking insurance chooses the type of insurance he requires. What he chooses is called insurance cover. When a person chooses a cover against liability he is covered against property damage or personal injury to a third party.
Third party here means someone else other than the insured. So, any payment for injury or damage is not made to the person who is insured. It is made to the affected person though he is not party to the insurance contract.
Personal injury to a third party may include disability and injury among others. For example if a shopper slides and injures his leg in a shopping mall, he can seek compensation from the owner of the mall. Property damage suffered by a 3rd party includes physical loss or damage and others. For instance if your car hits another car and damages it, the owner of the car you have hit will demand compensation from you.
Liability insurance protects the insured in two ways. If he is sued for negligence, the costs of the suit are settled by this policy. If a court decides that the policy holder should pay a third party for his negligence, the cover pays all the money the insured is held responsible for up to the set limit of the policy.
Many countries require those who risk being sued by third parties for negligence to take liability insurance cover. These people include drivers of vehicles, manufacturers, constructors and employers. The activities they engage in put other people at risk of loss or injury. The law requires them to be covered against liability so that if anything happens, money will be readily available to compensate the affected people.
Liability cover is not compulsory for everybody. It is however something worth considering by business owners, home owners and others. People are becoming increasingly aware of their legal rights. It is therefore easy to be sued for negligence. Though you may not predict or stop the risks, you can at least transfer them to an insurer.
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