When it comes to insurance, everyone has probably asked themselves the common questions:
- What kinds of insurances are there actually?
- Which of them do I need?
- What do I have to be mindful of?
To answer these questions fully is almost impossible. Just the different types of insurance alone seems inexhaustible. Nevertheless, we venture to provide an overview:
A wide range of insurances
In addition to the well-known policies such as health insurance, car insurance, household insurance, etc., some companies offer truly curious and wacky insurance options.
For example, insurance against getting a hole-in-one while golfing. One would think that the person who gets one on a golf course, i.e. gets the ball into the hole with just one shot, would be among the luckiest of people and should not need any protection for it. The catch, however, is that it is good manners to buy a round for the entire golf club should they be this "lucky," which can be very expensive. The appropriate insurance would cover the cost of such a celebration should it occur. Insurance for bad luck when playing the lottery, a soccer club's relegation to a lower-level league, getting stuck in an elevator or a multiple birth are further examples of curious coverages offered by the market.
Which insurance(s) do you really need?
This makes the question of which insurance policies are actually needed and are sensible all the more difficult. Some insurances are mandatory by law and for this reason have to be taken out. For every citizen in Germany, this includes health insurance.
To give another example, anyone who registers a motor vehicle in their name must take out motor vehicle liability insurance for it. It gets more complicated with insurances that are not obligatory, such as occupational disability, legal expenses or household insurance. In this case, the suitability of concluding a contract would have to be examined on a case-by-case basis. However, there is one non-compulsory insurance that almost everyone agrees would be a good idea to have: private liability insurance. According to a current survey by the insurance company Die Continentale, 79 percent of Germans consider this to be the most important insurance.
Private liability insurance: What does it mean?
Its name is derived from the risk it covers: anyone who causes damage to others has an obligation to be liable for it. Those who have private liability insurance can pass on the settlement of the claim to the insurance company. This fact is not necessarily important in the case of minor damage, e.g. if you accidentally damage a friend's cell phone. In this case, it's nice to have insurance to cover the costs incurred and not have to pay for them out of your own pocket. However, it is likely that very few people would be financially ruined by such a payment. When a very large amount of damage is involved, however, the situation is quite different. For example, if you accidentally knock a person off their bike and they are injured so badly that they can no longer work, you must pay not only for the damaged bike and the person's medical treatment, but also for their loss of income. This can quickly total in the millions, and in these cases, probably very few people are able to pay for the damage out of their own pockets. So it is great when you have an insurance that covers you in this kind of situation. This means that private liability insurance is a means of covering the most financially harmful risks.
What should one be mindful of?
But what do you have to be mindful of when taking out liability insurance?
Of course, a full and complete answer to this question cannot be given. At this point, however, the question should at least be examined a bit from all sides.
The first important aspect is the amount of coverage. We just talked about how some damages can quickly total in the millions. For this reason, 15 million should be the minimum coverage, though 50 million or more would be better - to be on the safe side. Based on the above example, it could even happen that not only does one person fall off their bike, it also results in an accident that damages an entire tour bus.
The next thing to consider is possible coverage exceptions. Although private liability insurance generally covers all damage caused to a third party, some situations are an exception and are excluded from insurance coverage. They must be included as an additional component in the contract and explicitly named there if the insurance is to cover damage in those instances as well.
One of these components is the benefit for damage caused by gross negligence. This refers to actions for which it would have been foreseeable from the outset that they could result in damage.
A typical case happened during an elevator ride. After a cheerful evening out, people were merrily singing and jumping in the elevator when it got stuck and the fire department had to be called. To cover the expenses of this operation, the hotel claimed damages from the parties responsible. The private liability insurance settled the costs only because gross negligence was included in the contract.
Another component relates to damage caused when doing someone a courtesy. Who hasn't helped a friend or acquaintance move as a favor? But if, for example, you accidentally drop the expensive flat screen and truthfully report this to your private liability insurance, you could be in for a rude awakening. This is because the latter will only cover the damage if courtesy damage is included in the policy.
The same applies to damage to borrowed or rented items. These must also be explicitly named in the policy so that damage to them can be covered in the event of an incident.
For anyone with young children, the issue of supervision has an important role. In principle, private liability insurances always pay when the duty to supervise one's children has been violated. If the people doing the supervising have not paid adequate attention and damage occurs, it will normally be covered. But what if you have supervised your children to the best of your ability and damage has still occurred? A typical example of this is a child suddenly throwing stones at the neighbor's expensive car. This can happen so quickly that it could not have been avoided, even though the supervising person was standing right next to the child, i.e. did not violate their duty to supervise.
The insurance company will also pay in this case, but by enforcing the law and informing the injured party in a legally binding manner that damage caused by children incapable of tort in such situations could not have been avoided and therefore does not have to be covered, neither by the insurance company nor by the person who caused the damage.
If, on the other hand, you want the insurance company to cover the costs of the damage in such a situation, then you should make sure that the policy includes the component benefit in the event of failure to fulfill the duty to supervise.
If you live in a rented property, you should have the rental property damage component in your policy. This concerns damages that the landlord claims against the tenant, such as a smashed window or a scratched floor.
Anyone who owns a house or land needs the homeowner's and landowner's liability component. This applies, for example, to damage to another person's car caused by a brick falling from the roof, or to personal injury caused by a fall on a sidewalk that has not been properly cleared and gritted in winter.
Anyone who works in the public sector needs so-called employer's liability insurance, which covers them against claims for which their employer can take recourse. Furthermore, a pecuniary loss insurance makes sense for those who often deal with cash in public service.
If the above-mentioned components are required and are included in the private liability insurance contract, you should be well covered in the event of a claim without experiencing a nasty surprise.
Current value vs. replacement value
In the case of property damage, private liability insurance always reimburses the current value only and not the replacement value. So if a cell phone is actually totaled, the injured party does not receive the original purchase price, but the current value.
To this effect, larger sums are always checked by legal experts at insurance companies. This can even go so far that the damaged item no longer has any current value at all.
Typical examples are laminate or parquet floors in rented apartments. Case law says that they should be renovated every 12 years as a rule, and the current value starting at this date is 0 EUR. As a result, the insurance no longer pays from this point on. At the same time, this also means that the person who caused a scratch, for example, can no longer be held liable from this point on. They damaged a thing that was no longer worth anything and can also use the legal audit by the insurance company as proof of this.
Insured persons
When taking out private liability insurance, it is also important to pay close attention to which persons are included in the policy. The current tariff is decisive here. In the case of a single tariff, this is only the policyholder. In the case of a family tariff, it is all persons in the policyholder's family. But be careful: with some tariffs, all persons must be named individually, which is very important - especially if there has been an addition to the family.
Reaching a certain age, changing residence or taking up a profession can also lead to automatic exclusion from a contract.
As a rule, damage that family members cause among each other is also excluded from insurance coverage.
Non-insured risks
Damage that you do to your own property is not covered by private liability insurance. For example, if you drop your own cell phone, no one else will be held liable for it.
Special risks must also be insured separately and are not covered by private liability insurance. The best-known example in this category is the motor vehicle. This requires its own motor vehicle liability insurance, as the risk of accidents is far too high.
Dog or horse owners must also take out a separate contract for the risk of the animal causing damage to a third party.
Another example of uninsured loss is damage that occurs as a result of a commercial activity. It's called "private" liability insurance for a reason. Commercial liability insurance must be taken out to cover the risks associated with a trade.
Caution needed when taking out combination contracts
Some insurers offer combination contracts in which several risks are covered in one contract, and they entice customers with a combination discount or something similar. This sounds good at first, but we advise caution.
A private liability insurance is normally concluded for a period of 3 years and can then be cancelled every year with a notice period of 3 months. After each claim settlement, however, there is a special right of termination and the contract can then be terminated extraordinarily by either party. In this respect, you should think carefully about whether you actually have every "little thing" settled via the liability insurance. If it becomes too much for the company, it simply cancels the contract after settling the claim. It is then very difficult to obtain a new contract, as the end of the previous insurance and the reason for termination must be stated each time an application is submitted. Under certain circumstances, you may find yourself without insurance coverage at a time when your financial security is especially threatened.
It is even more serious in the case of so-called combination contracts. In this case, the complete contract is always terminated. If a cancellation occurs, for example, because there are too many claims in the commercial sector, then the private liability insurance is nevertheless also eliminated. For this reason, combination contracts should be considered with caution.
Thoroughly weigh the pros and cons before signing
Good private liability insurance policies that contain all the important components can usually be obtained for an annual premium of less than EUR 100.
Even if it is not common with this type of insurance, you can still save a little on the premium if you build in a deductible per claim. One is perhaps already familiar with this principle due to its use in comprehensive insurance for motor vehicles, but it can also be applied to private liability insurance. It also makes it less tempting to report every small instance of damage.
In the end, it can be concluded that - just like compulsory insurances - private liability insurance is definitely a sensible coverage to have. Nevertheless, even a simple topic such as private liability insurance should be considered very thoroughly and individually before making a hasty decision somewhere. In particular, acquiring a clear understanding of one's personal circumstances is very important. Furthermore, this product should be monitored throughout its duration and, if necessary, adjusted to current personal circumstances, such as a move or starting a family.
Insurance IT must be flexible and innovative
The example of hole-in-one insurance alone shows that insurers need to develop innovative products. For this, of course, the IT infrastructure must be state-of-the-art and high-performance. For insurers, the many facets of liability insurance mean that many issues are mapped and implemented.
If you would like to learn how our software for composite insurance helps with claims management, for example, then feel free to contact our colleague Michael Rabin, Senior Business Developer at adesso insurance solutions.
