What does liability insurance mean and what does it cover?

Liability insurance, also informally known as “insurance against stupidity”, protects us against damage we cause unintentionally. It is a practical solution in case we personally, members of our household, or our pets cause damage to someone else’s property or health. What types of this insurance exist? When is it worth having? We will cover all the key information in the following article.

Liability insurance

Liability insurance is useful in our everyday life, employment, and business. After all, we never know when we might unintentionally cause harm to a third party. This type of insurance covers a wide range of situations where it can come in handy. For example, if we flood our neighbour’s flat, our child goes down a water slide too early and crashes into someone else, our dog bites someone, we knock over and break expensive goods in a shop, we accidentally hit a passer-by on a bicycle, we collide with a skier on a ski slope, and many others. These are everyday situations that this insurance protects us against. If we are not insured, we must always pay for the damage caused, and this is often a very costly matter. It covers all members of our household (husband/wife, cohabiting partner, children, parents, pets). We can take out a policy at an insurance company branch, through an insurance broker, or through a financial advisor. Most insurance companies offer online setup. We can report an insured event online using a form on the website, by phone, or in person at an insurance company branch.

Employee liability insurance

We use this policy when we cause damage to our employer. In the event of harm, the employer can demand up to 4.5 times our average earnings from us. Many people believe that only those who perform physical work that could cause damage need this insurance. The truth is that it can also be very useful for office work. For example, when we invoice goods incorrectly, spill a drink on a company computer, or process an order incorrectly, thereby causing damage to our employer. That is when our liability insurance comes in, covering the damage caused up to the agreed limit. If we use a company car, the cost of the liability insurance will be higher than if we did not use a car.

Employee liability insurance covers, for example:

• putting diesel into a company car instead of petrol,
• crashing a company car,
• dropping a part into a production machine, which then breaks down and halts the production process,
• losing a company mobile phone,
• destroying a company computer,
• injuring a colleague,
• unintentionally damaging the coffee machine in the kitchenette,
• incorrectly booking goods in the accounts,
• getting an account number wrong and causing damage to a client, etc.

For employers and entrepreneurs

Some business professions are legally required to take out liability insurance. This applies particularly to doctors, vets, lawyers, interpreters, insurance brokers, design engineers, architects, expert witnesses, notaries, accountants, etc. If we employ at least one employee, liability insurance is statutory by law. The insurance protects the employer if a worker suffers an occupational injury or an occupational disease. It also covers cases where we, as an entrepreneur, cause damage to a customer’s property. The price of the policy is individual depending on the field of business, how many employees we have, our level of responsibility for the property, health, and life of third parties, etc.

What is professional liability insurance

Professional liability insurance covers financial loss that your clients suffer because of a mistake, oversight or wrong advice in your professional work. It differs from general liability insurance, which mainly deals with physical damage to property or injury to people. For example, if an accountant misses a deadline and the client has to pay a penalty, or a design engineer makes a calculation error that leads to costly repairs, professional liability insurance can pay the client’s claim up to the agreed limit. That is why it is common in professions that give advice or deliver expert services.

What is not covered

Insurance companies view this type of policy differently. While some include damage caused by pets and livestock in their standard package, with others we have to arrange this separately. We often have to pay extra for non-standard risks that are not included in the basic package. However, there are several situations where no insurance company will pay out. These include in particular:

• damage that household members cause to each other,
• damage caused by intentional and gross misconduct,
• harm that occurred as a result of acting under the influence of drugs or alcohol,
• harm caused outside the territory of the Czech Republic and Europe.

If we travel within the Czech Republic and Europe, our existing policy covers the trips. If we plan to travel outside Europe, we take out worldwide cover as part of travel insurance.

Deductible

The amount we must always pay whenever any damage is settled under our policy. The advantage is that it lowers the final price of the insurance policy. For liability insurance, the deductible is around 1,000 CZK (about 46 USD). For higher limits, it is even more.

How liability insurance coverage works in practice

Liability insurance coverage is defined by two main numbers, the indemnity limit and the deductible. The limit is the most the insurer will pay for one claim or one year, and the deductible is the part you always pay yourself. When damage happens, the process usually looks like this:

• you write down what happened, take photos and collect contact details of the injured party,
• you report the claim to your insurer as soon as possible,
• you do not admit responsibility or promise payment before the insurer assesses the case,
• the insurer reviews the claim and pays the injured party.

As an illustration, if you cause damage worth 3,000 USD and your deductible is 50 USD, the insurer pays 2,950 USD and you pay the rest. If the damage exceeds your limit, you pay the difference yourself, so a limit that is too low is a common mistake.

What is covered?

Liability insurance covers:

• bodily injury to a person, compensation for pain and suffering, mental anguish of loved ones following serious injury or death of a person, consequential financial loss,
• damage to movable and immovable property, destruction, depreciation, loss, financial loss,
• harm to a live animal, injury, killing, loss of an animal, and consequential financial damage.

Price

The decisive factor is the choice of indemnity limits and the offers of individual insurance companies. We should choose primarily based on our individual situation (such as the risk level of our occupation). A low insurance price may mean insufficient compensation when damage occurs.

This is practical and sensible insurance that protects us against unexpected events. The insurance is not very expensive, and it is better to take it out than to pay high costs later for damage caused to a third party.

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Frequently asked questions about liability insurance

What is liability insurance?

Liability insurance protects you when you unintentionally cause harm to someone else. It pays for damage to another person’s health, property or animal up to the agreed limit. Without it, you would have to pay the full cost yourself.

What does liability insurance cover?

It covers bodily injury, damage to or loss of property and harm to animals that you, members of your household or your pets cause to third parties. It does not cover intentional damage, damage caused under the influence of alcohol or drugs, or damage between household members.

How much is liability insurance?

The price depends mainly on the indemnity limit, the deductible and the insurer you choose. Personal liability insurance is usually one of the cheaper types of cover. Policies for employees and businesses cost more, depending on the job, the field of business and the level of risk.

USD amounts are approximate, converted at the Czech National Bank rate of 21.80 CZK (about 1 USD) per USD on 2 October 2026.