How to Check the Legitimacy of Liability Insurance

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A liability policy provides protection against third-party claims. In the insurance world, the first party is the insured (policy holder), the second party is the insurance company and the third party is anyone not included in the first or second party. Because third-party claims can be very costly, it makes sense to make sure that your liability policy is legitimate. Taking a few steps to ensure the legitimacy of a liability insurance policy can be the difference between being protected by insurance or having to reach in your own pocket to pay a claim.

Check the insurance company’s rating. One way to determine if a liability policy is legitimate is to check its Moody’s, Standard & Poor’s or AM Best rating. Each of these three companies monitors the financial stability of insurance companies and other financial institutions. Request the insurance broker to provide information from one of the three companies to ensure the insurance company is solvent and financially stable.

Determine if the policy is in effect. More than looking at the liability policy’s inception and expiration date, contact the representing broker and ask if the policy is in force. The policy could have been canceled for non-payment of premium or underwriting reasons. If you are a certificate holder and not the policy holder, you might not receive timely notification of the policy’s cancellation.

Confirm the policy limits. While a liability policy with low limits may be perfectly legitimate, it may not be legitimate for your insurance needs. If you own a business that has a large products liability exposure, you must ensure the liability policy has adequate limits to cover a loss. Having a policy with inadequate limits is almost as bad as having no liability policy at all.

Review the named insured and additional named insureds. This is especially important for individuals who hold a certificate of insurance evidencing liability limits. An auto dealership, for example, may want to be added as an additional insured on an auto liability policy to protect its interests in a vehicle leased to a driver. If the additional insured endorsement is incorrectly worded or missing, the dealership is exposed to a liability suit as a result of negligence on the driver’s part. Although the dealership has its own liability coverage, it usually seek additional protection from the vehicle lessee's policy.

Review the state of licensure. Not all insurance companies are licensed to conduct business in all states. Make sure the liability insurance company is licensed to do business in the states in which the insured operates.


  • As economic conditions change, so do insurance company standings. As a result, it's best to check a policy's legitimacy each year.