Why liability insurance is indispensable: Protection against financial risks
26 Apr 2025
5
Minutes
Katrin Straub
CEO at nextsure
A small mishap can quickly become costly and threaten your financial well-being. Discover why you need liability insurance and how it protects you from unforeseen expenses. Read on for practical examples and expert tips.
The topic in brief and concise terms
Personal liability insurance is essential, as according to § 823 BGB, you are liable for damages caused without limit with your entire assets.
It covers personal injury, property damage, and consequential financial losses, and defends against unjustified claims (passive legal protection).
Ensure a high coverage amount (at least 10 million euros, preferably 50 million euros) and important inclusions such as loss of claims and damage to rented property.
Fundamental Protection: Understanding the Core Tasks of Liability Insurance
Private liability insurance is considered one of the most important insurances because it protects you from the financial consequences if you cause damage to others. Legally, everyone is obliged to be liable for any damages caused with their entire assets, in unlimited amounts – this is stipulated by § 823 of the German Civil Code (BGB). This means that, in the worst case, claims for damages can threaten your existence. Liability insurance plays a crucial role here: it first checks whether and to what extent there is an obligation to pay compensation. It settles justified claims up to the agreed insurance sum, while defending you against unjustified claims – this is also known as passive legal protection. Therefore, you are not only protected from the costs of damages but also from unjustified accusations. The private liability insurance is therefore essential.
Types of damage in focus: What exactly does liability insurance cover?
A good liability insurance policy essentially covers three types of damage: personal injury, property damage, and resulting financial losses. Personal injuries occur when people are injured or have their health impaired due to your fault; this may incur costs for treatments, loss of earnings, or even lifelong pensions. Property damage refers to the damage or destruction of someone else's property, for instance, if you drop a friend's smartphone. Actual financial losses not directly resulting from personal injury or property damage are rarer but can also be insured. It is important to have sufficiently high coverage, and experts recommend at least ten million euros, though 50 million euros is better. Many policies today also cover rental property damage, such as damage to rented living spaces, or the loss of private foreign keys. The exact coverage of a liability insurance policy can vary depending on the tariff.
Case studies: When the liability insurance specifically applies
To make the necessity of liability insurance more tangible, specific examples from everyday life can be helpful. Imagine you are visiting someone and accidentally knock over an expensive vase – classic property damage covered by your liability insurance. Or your child damages the neighbour's car while playing; again, the insurance can cover this, depending on the child's age and the exact terms of the contract. A frequently underestimated risk is courtesy damage: if you help a friend move and accidentally drop their TV, this is often covered. Another example: you lose the key to your rental apartment and the entire locking system in the building needs to be replaced. Without insurance coverage, this can quickly cost several thousand euros. These scenarios highlight how quickly a mishap can lead to significant financial burdens, against which functioning liability insurance offers protection.
Here are some typical incidents where liability insurance provides coverage:
Damage to the washbasin in a rental apartment caused by a fallen perfume bottle.
A scratch on the neighbour’s car caused by your child while playing.
Injury to another person while skiing who then demands compensation for pain and suffering.
Red wine stains on a friend's sofa due to a careless movement.
Loss of the apartment key in a multi-family house, requiring the lock system to be replaced.
Damage to a borrowed laptop.
These examples illustrate that protection against everyday risks is essential.
Legal Basis and Obligation: Do you need to have liability insurance?
In Germany, there is no general legal obligation for private liability insurance, unlike, for example, motor vehicle liability insurance. Nevertheless, it is indispensable because the Civil Code (§ 823 BGB) clearly stipulates that everyone is fully liable for any damage they cause to another. This means you are liable with all your current and future assets. Without insurance coverage, a major loss could mean financial ruin. Therefore, even though there is no direct insurance obligation, it is highly recommended to take out private liability insurance to protect yourself from these life-threatening risks. However, in certain areas, there are specific liability insurances that are mandatory, such as dog owner liability insurance in some federal states or hunting liability insurance.
Expert depth: Important clauses and what you should pay attention to
When reviewing or taking out your liability insurance, pay attention to some important details to ensure optimal protection. The insured sum should generally be at least ten million euros for personal injury, property, and financial losses, ideally fifty million euros or more. Ensure that the inclusion of default cover is part of the policy. This kicks in if someone causes damage to you but the perpetrator is neither insured nor solvent. Damage to rented properties, such as rented apartments, should also be covered, ideally up to at least five hundred thousand euros. The loss of third-party private and business keys can be expensive, so it makes sense to include this. Our expert tip: Check whether children who are legally incapable of committing an offense (under seven years old, under ten years old in traffic) are covered, if you have children. Also, damages from internet use, such as the accidental spread of viruses, should be covered. Compare the costs of liability insurance, not just the costs, but above all, the benefits.
Key aspects for your contract at a glance:
Sufficiently high insured sum (at least ten million euros, ideally fifty million euros).
Inclusion of default cover.
Coverage of damage to rented properties (including damage to movable rented items).
Protection in case of loss of third-party private and business keys.
Protection against damages caused by children who are legally incapable of committing an offense.
Coverage for damages from acts of courtesy.
Insurance coverage for internet-related damages (e.g., through data transmission).
Worldwide insurance coverage, at least for temporary stays abroad.
A careful review of these points ensures comprehensive protection for you.
Family and Household: Who is insured?
A personal liability insurance policy typically protects not only the policyholder themselves but also their family. Spouses or registered partners are usually covered. Unmarried partners can often be included in the policy if they live in the same household. Children are generally covered by the parental policy as long as they are minors or are in their first vocational training (school, apprenticeship, university) and are not yet married. Once children begin a second course of training or enter working life, they usually need their own liability insurance for children. People who help in the household, such as babysitters or cleaners, may be covered by your liability insurance during their work for you. It is advisable to check the exact conditions of coverage for family members in your policy to avoid gaps in coverage. However, a liability claim within the family is usually excluded.
Costs and tax aspects: What you should know
The costs of private liability insurance are usually low compared to the potential damage it covers, often starting from under five euros per month. The exact premium depends on various factors, such as the coverage amount, the chosen scope of services, and whether a deductible has been agreed upon. A deductible can reduce the premium but means you bear smaller damages up to the agreed amount yourself. Another advantage: Contributions to private liability insurance can be claimed as special expenses in your tax return, which further reduces the financial burden. You can find information on where to claim private liability insurance on your taxes in our blog. Also note that premiums may increase after a claim, more information on this can be found at does private liability insurance increase after a claim.
Your next step to comprehensive protection
More useful links
Wikipedia offers a comprehensive overview of liability insurance in Germany.
Gesetze im Internet contains the exact wording of paragraph 823 of the German Civil Code (BGB), which governs liability for damages.
GDV (Gesamtverband der Deutschen Versicherungswirtschaft) provides detailed statistics on the business development of general liability insurance in Germany.
Statista shows statistical data on the stock of liability insurance contracts in Germany since 1990.
Destatis (Statistisches Bundesamt) offers a press release from the Federal Statistical Office, highlighting relevant numbers and facts about the German economy and society.
UDV (Unfallforschung der Versicherer) provides information about the insurers' accident research and measures to increase road safety.
FAQ
What exactly do I need liability insurance for?
You need liability insurance to protect yourself from the financial consequences of damages you accidentally cause to other people or their property. It covers compensation claims and prevents you from having to use your personal assets.
What types of damage are typically not covered by personal liability insurance?
Typically not covered are damages that you intentionally cause, damage to your own property, damage inflicted on yourself, or damage resulting from the use of your own motor vehicles (for which there is motor vehicle liability insurance).
What does "passive legal protection" mean in liability insurance?
Passive legal protection means that liability insurance not only pays legitimate compensation claims but also defends you against unjustified or excessive demands at its own expense, even in court if necessary.
What should the deductible be for liability insurance?
An excess can reduce the insurance premium. The amount is individually selectable. Common amounts range from zero to 300 euros. Consider whether you wish to cover smaller damages yourself in order to save on premiums in return.
What is a credit default coverage and why is it important?
The coverage for uninsured claims steps in when a third party causes you damage but does not have their own liability insurance and cannot cover the damage from their own resources. Your own insurance then covers the costs.
Can I deduct the liability insurance premiums from my taxes?
Yes, contributions to private liability insurance can be claimed as special expenses in the tax return.
