Why liability insurance is indispensable: protection against financial risks
26.04.25
6
Minutes
Katrin Straub
Managing Director at nextsure
A small mishap can quickly become expensive and threaten your financial security. Find out why you need liability insurance and how it protects you from unexpected costs. Read on for practical examples and expert tips.
The topic in brief and concise terms
Private liability insurance is essential, as under § 823 BGB you are liable without limit with your entire assets for damage caused.
It covers personal injury, property damage and resulting financial losses, and defends against unjustified claims (passive legal protection).
Pay attention to a high sum insured (at least €10 million, preferably €50 million) and important inclusions such as loss of receivables and damage to rented property.
Fundamental protection: understanding the core functions of liability insurance
Private liability insurance is one of the most important types of insurance there is, because it protects you from the financial consequences if you cause damage to others. By law, everyone is obliged to stand fully liable for any damage caused, without limit and with all their assets – this is governed by Section 823 of the German Civil Code (BGB). This means that, in the worst case, claims for compensation can threaten your very existence. Liability insurance plays a central role here: it first checks whether an obligation to pay compensation exists and, if so, to what extent. It settles valid claims up to the agreed sum insured, while fending off unjustified claims on your behalf – this is also known as passive legal protection. This means you are protected not only from the cost of damage, but also from unfounded accusations. So private liability insurance is a must.
Types of damage in focus: What exactly does liability insurance cover?
A good liability insurance policy primarily covers three types of losses: personal injury, property damage and resulting financial loss. Personal injury occurs when people are injured or their health is harmed through your fault; costs for treatment, loss of earnings or even lifelong pensions may arise. Property damage refers to damage to or destruction of someone else’s property, for example if you drop a friend’s smartphone. Pure financial losses that are not a direct consequence of personal injury or property damage are less common, but can also be insured. It is important to have a sufficiently high sum insured; experts recommend at least ten million euros, with 50 million euros being better. Many policies now also cover damage to rented property, i.e. damage to rented living accommodation, or the loss of private keys belonging to others. The exact benefits of liability insurance can vary depending on the policy.
Practical cases: When liability insurance actually kicks in
To make the need for personal liability insurance more tangible, concrete everyday examples help. Imagine you are visiting someone and accidentally knock over an expensive vase – a classic property damage claim covered by your liability insurance. Or your child damages the neighbour's car while playing; here too, the insurance may step in, depending on the child's age and the exact policy terms. A commonly underestimated risk is damage caused while doing someone a favour: if you help a friend move and drop their television, this is often also covered. Another example: you lose the key to your rental flat and the entire locking system in the building has to be replaced. Without insurance cover, that can quickly cost several thousand euros. These scenarios show how quickly an accident can lead to considerable financial burdens, which a comprehensive liability insurance policy protects against.
Here are some typical claims in which liability insurance pays out:
Damage to the washbasin in the rental flat caused by a dropped bottle of perfume.
A scratch on the neighbour's car caused by your child while playing.
Injury to another person while skiing, who claims compensation for pain and suffering.
Red wine stains on friends' sofa after an uncareful movement.
Loss of the key to a block of flats, requiring the locking system to be replaced.
Damage to a borrowed laptop.
These examples show that cover for everyday risks is essential.
Legal basis and obligation: Do you need liability insurance?
In Germany, there is no general legal obligation to have private liability insurance, unlike motor vehicle liability insurance, for example. Nevertheless, it is indispensable, as the German Civil Code (§ 823 BGB) clearly stipulates that anyone is liable in full for any damage they cause to another person. This means that you are liable with all of your current and future assets. Without insurance cover, a major claim can mean financial ruin. Although, therefore, no direct legal requirement exists, taking out private liability insurance is strongly advisable in order to protect yourself against these existential risks. However, in certain areas there are specific liability insurances that are mandatory, such as dog owners' liability insurance for dogs in some federal states or hunting liability insurance.
Expert insight: Important clauses and what you should look out for
When taking out or reviewing your liability insurance, you should pay attention to a few important details to ensure you are optimally protected. The cover amount should be a lump sum of at least ten million euros for personal injury, property damage and financial loss; better still, 50 million euros or more. Make sure that cover for uninsured losses is included. This steps in if someone causes you damage, but the person responsible is neither insured nor able to pay. Damage to rented property, i.e. damage to rented flats, should also be covered, ideally up to at least five hundred thousand euros. The loss of third-party private and professional keys can be expensive, so corresponding cover makes sense. Our expert tip: if you have children, check whether children without criminal responsibility (under seven years old, and under ten in road traffic) are co-insured. Damage caused through internet use, such as the accidental spread of viruses, should also be covered. Compare not only the costs of liability insurance, but above all the benefits.
Important aspects for your policy at a glance:
A sufficiently high cover amount (at least ten million euros, preferably 50 million euros).
Inclusion of cover for uninsured losses.
Cover for damage to rented property (including damage to movable rented items).
Protection in the event of loss of third-party private and business keys.
Cover for damage caused by children without criminal responsibility.
Cover for damage caused as a favour.
Insurance cover for internet-related damage (e.g. through data transmission).
Worldwide cover, at least for temporary stays abroad.
Careful review of these points will ensure you have comprehensive cover.
Family and household: Who is also covered?
A private liability insurance policy usually protects not only the policyholder themselves, but also their family. Spouses or registered civil partners are usually covered as well. Unmarried partners can often also be included in the policy if they live in the same household. Children are generally covered under their parents’ policy as long as they are minors or are in their first course of vocational training (school, apprenticeship, university studies) and are not yet married. Once children begin a second course of training or start working life, they usually need their own liability insurance for children. People who help out in the household, such as babysitters or cleaners, may also be covered by your liability insurance while carrying out work for you. It is advisable to check the exact conditions for including family members in your policy to avoid gaps in cover. However, a liability claim within the family is usually excluded.
The cost of private liability insurance is usually low compared with the potential damage it covers, and often starts at less than five euros per month. The exact premium depends on various factors, such as the level of cover, the chosen scope of benefits and whether an excess has been agreed. An excess can reduce the premium, but it means that you pay for smaller claims yourself up to the agreed amount. 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 as a tax deduction in our blog. Also note that premiums may increase after a claim; you can read more about this under does private liability insurance increase after a claim.
Your next step towards comprehensive protection
Private liability insurance is an indispensable shield against the financial consequences of everyday mishaps. It not only protects your assets, but also gives you the reassurance that, should the worst happen, you will not be left to face it alone. Given the potentially life-threatening costs that a single moment of carelessness can cause, no one should go without this protection. At nextsure, we understand that every life situation places individual demands on insurance cover. That is why we offer expert advice to help you find the right cover for you. Make use of our expertise for your peace of mind.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific suggestions for improvement.
More useful links
Wikipedia offers a comprehensive overview of liability insurance in Germany.
Law on the Internet contains the exact wording of Section 823 of the German Civil Code (BGB), which regulates liability for damages.
GDV (General Association of the German Insurance Industry) provides detailed statistics on the business development of general liability insurance in Germany.
Statista shows statistical data on the number of policies in force for liability insurance in Germany since 1990.
Destatis (Federal Statistical Office) offers a press release from the Federal Statistical Office that sheds light on relevant figures and facts about the German economy and society.
UDV (Insurers' Accident Research) provides information on insurers' accident research and measures to increase safety in road traffic.
FAQ
What exactly do I need liability insurance for?
You need liability insurance to protect yourself against the financial consequences of damage you accidentally cause to other people or their property. It covers claims for compensation and prevents you from having to be liable with your private assets.
Which damages are typically not covered by personal liability insurance?
Typically not covered are damage you intentionally cause, damage to your own property, damage inflicted on yourself, or damage arising from the use of your own motor vehicles (for this 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 justified claims for damages, but also defends you at its own expense against unjustified or excessive claims, if necessary in court.
How high should the excess be for liability insurance?
An excess can reduce the insurance premium. The amount can be chosen individually. Common amounts are between zero and 300 euros. Weigh up whether you would like to cover smaller claims yourself in return for saving on premiums.
What is uninsured loss cover and why is it important?
Claims cover steps in when a third party causes you damage, but does not have their own liability insurance and is also unable to pay the damage from their own funds. Your own insurer then covers the costs.
Can I deduct liability insurance premiums from my taxes?
Yes, contributions to private liability insurance can be claimed as special expenses in the tax return.
