Casualty Insurance Definition And How It Works (2024)

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

If you’re shopping for an insurance policy, you might come across the term “property and casualty insurance.”

Property and casualty insurance are standard parts of insurance policies, but what they cover is different:

  • Property insurance covers your own physical assets like a vehicle or house.
  • Casualty insurance provides liability coverage if you’re responsible for other people’s property damage or injuries.

What Is Casualty Insurance?

Casualty insurance provides liability coverage within certain policies, like car insurance and home insurance.

If you’re responsible for someone else’s property damage or bodily injuries, the casualty insurance portion of your policy compensates the person making the claim against you. It also covers your legal fees, court costs and settlements if you get sued.

What Does Casualty Insurance Cover?

What casualty insurance covers can vary depending on the type of insurance.

Home Insurance

  • Expenses related to injuries to others for which you (or your household members) are legally responsible (not including car accidents).
  • Costs associated with accidentally damaging someone else’s property (not including car accidents).
  • Legal costs if you get sued because of an accident, including legal judgments against you and settlements.

Car Insurance

  • Another person’s medical expenses (and potentially pain and suffering) if they are injured in an accident you cause.
  • Another person’s vehicle repairs if you cause an accident.
  • Fixing someone else’s property (like a wall or fence) if you cause an accident.
  • Legal costs if you get sued because of an accident.
  • Accidents caused by uninsured or underinsured motorists, where you make a claim for your own injuries on your own uninsured motorist coverage.

Renters Insurance

  • Expenses for others’ injuries when you (or your household members) are legally responsible (not including car accidents).
  • Costs if you accidentally damage someone else’s property (not including car accidents).
  • Legal costs if you get sued because of an accident.

What Does Casualty Insurance Not Cover?

If casualty insurance doesn’t apply to your situation, in many cases another type of insurance may cover the problem.

Car Insurance

ProblemType of insurance that may cover the problem
Your injuries if you cause an accidentThe personal injury protection (PIP) or the medical payments coverage portion of your car insurance policy; health insurance
Physical damage to your vehicleYour car insurance policy’s comprehensive or collision coverage
Vehicle theftYour car insurance comprehensive coverage
Personal items inside your vehicle that are damaged or stolenYour home or renters insurance
Injury or property damage claims that exceed your liability limitsUmbrella insurance

Home Insurance

ProblemType of insurance that may cover the problem
Your injuries or a family member’s injuriesHealth insurance
Pet medical expensesPet insurance
Dog bitesHomeowners or renters casualty insurance generally covers bills if your dog bites someone else, but some insurers exclude dog liability
Intentional physical harm or property damageIntentional acts not covered by insurance
Home-based business claimsBusiness insurance
Damage to your home or personal belongingsHome insurance policy’s property coverage
Break-ins and theftHome insurance policy’s property coverage
Injury or property damage claims that exceed your liability limitsUmbrella insurance
Temporary living expenses if you have to relocate while your home is repaired following a problem covered by a policy, like a fireThe additional living expenses coverage within a home or renters insurance policy

Renters Insurance

ProblemType of insurance that may cover the problem
Your injuries or a family member’s injuriesHealth insurance
Pet medical expensesPet insurance
Dog bitesHomeowners or renters casualty insurance generally covers bills if your dog bites someone else, but some insurers exclude dog liability
Intentional physical harm or property damageIntentional acts not covered by insurance
Home-based business claimsBusiness insurance
Damage to your personal belongingsRenters insurance property coverage
Break-ins and theftRenter insurance property coverage
Injury or property damage claims that exceed your liability limitsUmbrella insurance
Temporary living expenses if you have to relocate while your home is repaired following a problem covered by a policy like a fireThe additional living expenses coverage within a home or renters insurance policy
A roommate’s personal items or liabilities in the event of a claimYour roommate’s insurance

How Casualty Insurance Works

Casualty insurance can cover you if another person accuses you of being responsible for their injuries or property damage.

For example:

  • If someone is injured at your home and needs medical treatment, that person could receive a settlement from your insurance company.
  • If you are sued because of the accident, your insurance company would cover your legal fees.

No matter the type of insurance, casualty insurance always has a coverage limit—the maximum amount the insurer will pay for a single claim. If you have a claim against you that exceeds your policy limit, you will have to pick up the cost.

For example, say you cause a car accident and the other driver suffers serious injuries. Their medical bills total $90,000, but you only have $50,000 in bodily injury liability insurance. In that case, the other driver could sue you for the difference, which you would have to pay out of pocket.

You may purchase an umbrella insurance policy. Umbrella insurance is an excess liability insurance policy and kicks in when the limits of your “base” policy limits are exhausted.

What Is Property and Casualty Insurance?

Property and casualty insurance, often shortened to P&C insurance, describes insurance policies that cover your property and liabilities. Some of the most common types of P&C insurance include parts of auto, homeowners, renters and condo insurance.

Property and casualty insurance is typically packaged together within one policy. For example, homeowners insurance includes both property insurance and casualty insurance.

Property and casualty insurance is typically packaged together within one policy.

Example of How Casualty Insurance Works as Part of Home Insurance

  • Jill falls down the front steps at Debbie’s home and breaks her ankle.
  • Debbie had put off repairing the railing of her steps, which caused the fall
  • Because Debbie neglected to repair the railing, she bears some legal responsibility for the accident.
  • In this instance, the casualty insurance portion of Debbie’s homeowners insurance covers Jill’s hospital bills. It also pays Debbie’s legal fees (up to the coverage limit) if Jill sues Debbie.

Example of How Casualty Insurance Works as Part of Car Insurance

  • As Kevin is backing out of a driveway when his SUV hits a pickup truck belonging to his neighbor, Jason.
  • The crash is Kevin’s fault, and he’s legally liable for the $1,000 in damage caused to Jason’s truck.
  • The casualty insurance component of Kevin’s auto insurance pays for the damage to Jason’s vehicle.

Example of How Casualty Insurance Works as Part of Renters Insurance

  • Molly is installing a window air conditioning unit in her second-story apartment when the air conditioner falls out of the window and onto a car parked in the driveway below.
  • Molly is responsible for causing $3,000 in damage to the car.
  • The property damage liability insurance within her renters insurance policy pays the vehicle owner for repairs.

Is Casualty the Same as Liability?

Casualty insurance is essentially the same as liability insurance. If you find yourself responsible for an injury or property damage to someone else, the liability portion of your insurance policy covers it.

For example, car insurance and home insurance are considered property and casualty insurance policies because they cover your property (a vehicle or house) as well as your liability. For comparison, flood insurance is only a property insurance policy. It covers your house and personal items if there’s flood damage, but it doesn’t include any liability coverage.

Why You Need Liability Insurance

Having liability insurance can help you avoid having to gut your savings and sell off assets, and even avoid bankruptcy, if you have a large claim against you.

For example, if your liability coverage limit is less than a court judgment against you, you’re responsible for paying the remainder not covered by your insurance.

How Much Casualty Insurance Do You Need?

You generally want to buy enough liability insurance to cover what you could lose in a lawsuit.

Most states require drivers to carry a minimum amount of liability car insurance. You can buy more than the minimum required, which is generally recommended. State minimums are typically not enough to properly cover your assets.

Auto insurance has three levels of liability coverage listed in policies:

  • Injury or death to one person.
  • Injury or death to more than one person per accident.
  • Damage to someone else’s property.

The liability coverage within a homeowners policy is often between $100,000 and $500,000. If your assets exceed $500,000, insurance companies offer umbrella insurance, with coverage of $1 million and up. Umbrella insurance also covers some extra problems, such as libel and slander claims against you.

Your liability coverage limits should be enough to match or exceed your net worth. This includes the total value of your personal assets, like real estate, vehicles, savings, retirement accounts and investments.

Best Car Insurance Companies 2024

With so many choices for car insurance companies, it can be hard to know where to start to find the right car insurance. We've evaluated insurers to find the best car insurance companies, so you don't have to.

Learn More

I am an insurance expert with in-depth knowledge of property and casualty insurance. My expertise stems from years of working in the insurance industry and a thorough understanding of the intricacies involved. I have dealt extensively with various types of insurance policies, including auto, homeowners, renters, and liability coverages.

Now, let's delve into the concepts presented in the article you provided:

1. Property and Casualty Insurance Overview:

  • Definition: Property and casualty insurance, often abbreviated as P&C insurance, encompasses policies that cover both your property and liabilities.
  • Types Covered: Auto, homeowners, renters, and condo insurance are common examples of property and casualty insurance.

2. Casualty Insurance:

  • Definition: Casualty insurance provides liability coverage within certain policies, such as car insurance and home insurance.
  • Coverage: It compensates for property damage or bodily injuries for which you are responsible, covering legal fees, court costs, and settlements in case of a lawsuit.

3. Casualty Insurance Coverage by Type:

  • Home Insurance Coverage:

    • Injuries to others for which you are legally responsible.
    • Costs associated with accidentally damaging someone else's property.
    • Legal costs if sued due to an accident.
  • Car Insurance Coverage:

    • Another person's medical expenses and vehicle repairs if you cause an accident.
    • Legal costs if sued due to an accident.
    • Coverage for accidents caused by uninsured or underinsured motorists.
  • Renters Insurance Coverage:

    • Expenses for others' injuries when you are legally responsible.
    • Costs if you accidentally damage someone else's property.
    • Legal costs if sued due to an accident.

4. What Casualty Insurance Does Not Cover:

  • It outlines scenarios where casualty insurance may not apply and specifies the types of insurance that could cover those situations.

5. How Casualty Insurance Works:

  • Provides examples of scenarios where casualty insurance comes into play, such as covering medical bills and legal fees resulting from accidents.

6. Casualty vs. Liability:

  • Clarifies that casualty insurance is essentially the same as liability insurance, both covering injuries or property damage for which you are responsible.

7. Importance of Liability Insurance:

  • Highlights the significance of liability insurance in avoiding financial strain, asset loss, and bankruptcy in the event of a large claim.

8. Determining Casualty Insurance Needs:

  • Recommends purchasing enough liability insurance to cover potential losses in a lawsuit.
  • Emphasizes the importance of matching liability coverage limits with one's net worth.

9. Best Car Insurance Companies 2024:

  • Concludes with information about evaluating and selecting car insurance companies, encouraging readers to explore options for the right coverage.

Feel free to ask if you have any specific questions or if there's a particular aspect you'd like more information on.

Casualty Insurance Definition And How It Works (2024)
Top Articles
Latest Posts
Article information

Author: Nicola Considine CPA

Last Updated:

Views: 6177

Rating: 4.9 / 5 (69 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Nicola Considine CPA

Birthday: 1993-02-26

Address: 3809 Clinton Inlet, East Aleisha, UT 46318-2392

Phone: +2681424145499

Job: Government Technician

Hobby: Calligraphy, Lego building, Worldbuilding, Shooting, Bird watching, Shopping, Cooking

Introduction: My name is Nicola Considine CPA, I am a determined, witty, powerful, brainy, open, smiling, proud person who loves writing and wants to share my knowledge and understanding with you.