 Personal finance, PowerPoint, presentation, liability, insurance, prepare to get financially fit by practicing personal finance. We've been breaking the financial decisions down into the short term and long term financial decisions, the short term being the ones that we're going to train our gut to trust our gut, honing down our habits to trust the habits, long term decisions being those that we have to use the adage of measure twice, cut once, insurance going into that category of the long term types of decisions because they deal with future periods and predictions into future periods. Therefore, we have a decision making process that looks something like this. We're going to set our goals. We're going to develop a plan to reach the goals. We're going to put the plan into action. We're going to review the results and then we'll start it over. Noting that when we look about at the insurance, the events that we might be safeguarding against to some degree, disability, illness, death, retirement, property loss, liability. So here's the chart we've looked at in prior presentations. We're focusing here on liability insurance. Most of this information can be found at Investopedia where you can go take a look at the references, resources, continue your research from there. This is by Julia Kagan, updated March 20th, 2022. What is liability insurance? The term liability insurance refers to an insurance product that provides an insured party with protection against claims resulting from injuries and damage to other people or property. So you're guarding against basically in essence lawsuits, right? Other people that have losses that they're going to say is a result of you in some way and therefore holding you in some way, shape or form are responsible. That's what we're trying to, of course, guard against. And that could be a significant event, just like other types of insurance. If we're having insurance for our property or our home, for example, insurance for like a fire or something like that, if the home was to be destroyed, it would be a significant financial event. If we have a significant lawsuit that is found to be our, we're at fault for it. And then that could be a significant financial event that although hopefully it's rare, hopefully we're not going to have that event happen. Just like many items with the insurance, we might want to have the liability reduction, the risk reduction of having the insurance. Liability insurance policies cover any legal costs and payouts and insured party is responsible for if they are found legally liable. So meaning if someone else has some harm that is caused to them and the person that is insured with the liability insurance is found responsible for that harm, that's when the liability insurance could kick in. So intentional damage and contractual liabilities are generally not covered in liability insurance policies. So in other words, if you intentionally did the damage, that's different than what you would think would be covered by the liability insurance, which would be unintentional damage that has been caused, which you are still found responsible for. And you can see why that would be somewhat important because you can imagine like a rich person getting really good liability insurance and actually intentionally causing damage because they're just malicious for some reason. That is not what you would imagine. The liability insurance is there to do. You would think the liability insurance is there to cover you in the event that some unintentional kind of damage is caused to somebody else and you are found responsible for it. Unlike other types of insurance, liability insurance policies pay third parties, not policyholders. So if you have a policy for liability insurance and there's damage that someone else claims that is your at fault for, then the insurance company, it would make sense, doesn't pay the policyholder yourself for the damage they're going to typically pay the third party, the one that's claiming the damage that has been deemed your fault. So how liability insurance works. Liability insurance is critical for those who are liable and at fault for injuries sustained by other people or in the event that the insured party damages someone else's property. So that's what you're trying to safeguard against. If you're at fault, if you're found at fault, obviously you have to purchase the insurance before the problem happens so that in the event that that problem happens, then you have the insurance for it. Same kind of thing with any other kind of insurance. You're hoping that you're not going to cause anyone else damage and we're going to do our own mitigation strategies by not being reckless or anything like that so that we can we're going to cause other people damage. But in the event that we do, if we have the insurance, then that's what it's safeguarding against because clearly liabilities of that sort can be substantial and financially devastating. So as such, liability insurance is also called third party insurance. Liability insurance does not cover intentional or criminal acts even if the uninsured party is found legally responsible. So again, you can't really and this is kind of a problem with insurance, which you would think wouldn't be a problem. You'd think, well, you can have insurance against an event that may that may happen. It's not going to cause you to be more malicious. But you can imagine a situation where someone thinks they're armored with liability insurance and they would actually then be more reckless in their activities and we see the same kind of thing could possibly even happen with other types of insurance like health insurance. You feel like you're covered with health insurance and therefore you're not going to take care of yourself as much and you would think, well, that doesn't make sense really, because you're hoping not to harm people. And then the liability is going to help you in the event that there's an accident doesn't mean you actually want to write in the with the health insurance, you would think that the thought process would be you're trying to be healthy just to be healthy. But in the event that something happens, then then you have the insurance to help you out that situation doesn't mean it's going to solve the situation. Of course, if you harm somebody else, the financial the financial benefits that you give to them through the liability insurance might not be sufficient to help with all the other stuff that they might be dealing with depending on what the actual act was. Right. So in any case, policies are taken out by anyone who owns a business, drives a car, practices, medicine or law, basically anyone who can be sued for damages and or injuries. So you're going to have certain situations where it's more likely that you're going to need liability protection than other types of situations. So policy protects. So policies protect both the insured and third parties who may be injured as a result of the policy holders unintentional negligence. For instance, most states require that vehicle owners have liability insurance under their automotive insurance policies to cover injury to other people and property in the event of accidents. So when you're talking about people on the road, you might have someone you can you can imagine insurance and you say, well, I'm going to insure against my car being damaged, but you can imagine people on the road saying, I don't care if my car is damaged and you can imagine a big a big vehicle possibly where they're saying, my car is a tank, I'm not going to be damaged in my car. But clearly if you damage someone else's car, then then they can hold you responsible for that. And that's when this mandate for the insurance kicks in because if you're talking about someone that doesn't have insurance and don't have the means to cover the damage to someone else's car, then that's why this kind of a mandate type of thing goes into play here. So we'll talk more about car insurance possibly in future presentations, but we generally have those two kind of sides to it. You've got your own vehicle, which could be a substantial cost. And then you've got the potential liability that could be to someone else if you're responsible for the damage caused to someone else's vehicle. So a product manufactured may purchase product liability insurance to cover them if a product is faulty and causes damage to the purchaser, purchasers or another third party, business owners may purchase liability insurance that covers them if an employee is injured during business operations. The decisions doctors and surgeons make will on the job also require liability insurance policies, personal liability insurance policies are purchased primarily by high net worth individuals. So if you're buying personal liability insurance, it possibly is due to the case that you're feeling kind of like a target, right? If you have if you're a high net worth individual, then it's likely that people are more likely to target you and sue you because you have the money to do it. Whereas if you didn't have any money, then even if you were held responsible for something, you don't have any money. You know, it'd be like trying to trying to get blood from a rock or something or they can't really do anything. So the risk is generally higher when the net worth is higher. Personal liability insurance policies are purchased primarily by high net worth individuals or those with sizable assets. But this type of coverage is recommended to anyone with a net worth that exceeds the combined coverage limits of other personal insurance policies such as home and auto coverage. So if you look at the other policies and you're feeling that it's insufficient to fully ensure you, that's when you might think about the added insurance coverage at that point. So the cost of additional insurance policies doesn't appeal to everyone, although most carriers offer reduced rates for bundled coverage package packages. Personal liability insurance is considered a secondary policy and may require policyholders to carry certain limits on their home and auto policies, which may result in additional expenses. According to data from the Insurance Information Institute, the United States is one of the largest markets for commercial liability insurance, which would make sense because there's some high net worth individuals, so they might be requiring that. And plus there's a lot of a lot of lawsuits that go on here. So we like our right to sue people around here in the United States. Any case, for instance, there are six hundred and fifty six billion in commercial liability claims are written across the country in two thousand twenty special considerations, although commercial general liability insurance protects against most legal hassles, it doesn't protect directors and officers from being sued and it doesn't protect the insured against errors and omissions. Companies require special policies for these cases, including errors and omissions, liability insurance, otherwise known as E and O and errors and omissions, liability insurance policy covers lawsuits arising from negligent professional services or failing to perform professional duties. So if you're in like a law firm, the accountants, architects, engineers, any other business providing service to a client or a fee should purchase this form of insurance because you provided these services and you're more likely in those instances to have that kind of claim brought against you and therefore errors and omissions. So the the E and O policy does not cover criminal prosecution, fraudulent or dishonest acts. So once again, when you're thinking about this kind of insurance, you're not basically buying armor that people can then use to act in a way that they're dishonest, a fraudulent type of way, a lying or causing, you know, intentional harm. That's not the idea. And unfortunately, it can kind of work that way again. When you bite, when people have feel insured against something, they could act more recklessly than possibly they otherwise would. But the idea would be that you're trying not to get sued, of course, and you're trying not to cause anybody any other harm or damage. And then you want the law, you want the insurance in the event that you caused harm, even though you did your due diligence so that you're covered in that case. So an E and O policy does not cover criminal prosecution, fraudulent or dishonest acts or claims against bodily injury that the insured, however, is covered for attorney fees, court costs and any settlements up to the amount specified by the insurance contract. We have the directors and officers, the D and O insurance. This type of policy protects directors and officers of large companies against legal judgments and costs arising from unlawful acts, erroneous investment decisions, failures to maintain property, releasing confidential information, hiring and firing decisions, conflicts of interest, gross negligence and other errors. So if you're a director or an officer of like a company, for example, then you're acting as in essence an agent of the owners of the company, which are the shareholders. So you can imagine them trying to hold the directors responsible for certain acts that they have done that possibly are argued not to be in the best interest of, say, the owner. So they're in a kind of a high profile situation and might need special insurance directors and officers types of insurance in that instance. So most D and O policies exclude coverage for fraud or other criminal acts. So once again, the fact that someone has, if they're a director and officer, they're not getting the insurance, they shouldn't feel like it's like armor that they can then act recklessly or in their own self-interest, as opposed to in the interest of who's they're supposed to be acting on the interest of the shareholders generally. So they can't. So if there's fraud involved in intentional deceit, that's not what it's for. You would think then that these officers would be trying to act in their best interest. If you are, if you were a director or an officer, I would recommend, of course, I would think that you'd want to be acting in the best interest that you can. But that decision or that position that you are in is one that could be subject to a higher degree or specialized kind of lawsuits. And in the event that that takes place, that's when you would think the insurance kicks in. So premiums depend on the company, its location, industry type and loss experience. So types of liability insurance. Business owners are exposed to a range of liabilities, any of which can subject their assets to substantial claims. All business owners need to have an asset protection plan in place that's built around available liability insurance coverage. Here are the main types of liability insurance. We've got the employer's liability and workers' compensation and is mandatory. Generally, this employer's liability and workers' compensation is often mandatory coverage for employers, which protects the business against liabilities arising from injuries or the death of an employee. We have the product liability insurance is for businesses that manufacture products for sale on the general market. Product liability insurance protects against lawsuits arising from injury or death caused by their products. We have the indemnity insurance provides coverage to protect a business against negligent claims due to financial harm resulting from mistakes or failure to perform. We have the director and officer liability coverage covers a company's board of directors or officers against liability if the company should be sued. Some companies provide additional protection to their executive team, even though the corporations generally provide some degree of personal protection to their employees. Umbrella liability policies are personal liability policies designed to protect against catastrophic losses. Coverage generally kicks in when the liability limits of other insurances are reached. We have the commercial liability insurance is a standard commercial general liability policy also known as comprehensive general liability insurance. It provides insurance coverage for lawsuits arising from injury to employees and the public and property damage caused by an employee as well injuries suffered by the negligent action of employees. The policy may also cover infringement on intellectual property, slander, libel, contractual liability, tenant liability and employment practices. Liability, comprehensive general liability policies are tailor made for any small or large business partnership or joint venture businesses, a corporation or association and organization or even a newly acquired business insurance coverage includes a bodily injury, property damage, personal and an advertising injury, medical payments and premiums and operations liabilities, insurers provide coverage for compensatory and general damages for lawsuits, but not punitive damages.