A liability is the financial responsibility that one person has to another person in certain situations. Liability results from negligence or the failure of one person to exercise the necessary care to protect other people from harm.

The cost of liabilities can be substantial. Every year thousands of people are sued for the more than one million accidents that are caused by or related to cars or homes. The purpose of personal liability insurance is to protect you from the financial costs of legal liability and negligence.

There are the two major forms of liability insurance: (1) the liability portions of homeowners and automobile insurance and (2) an umbrella liability policy.

An umbrella liability policy is an insurance policy that adds additional protection to the protection provided by your homeowners and automotive policies. An umbrella policy becomes effective only after the limits of your homeowners or automotive policy have been reached. Therefore, many companies require specific coverage limits on homeowners and automotive policies. For example, an insurance company may require you to have 250/500/100 insurance on all vehicles and $300,000 on all homes before they will write an umbrella policy.