If your neighbor's tree falls on your home, your insurance should cover the repairs to your home and the removal of the tree. If your neighbor was negligent, your insurance company may go after him/her and/or their insurance company for re-imbursement.
If you believe your neighbor's tree is a hazard or diseased or dying, let him/her know before anything happens to the tree and then send him/her a letter so you have written documentation of the notification. In the event something bad happens, it can then be proven that he/she was notified of the potential hazard.
As mom always said, communication is key!
For more information, see the National Association of Realtor's HouseLogic.
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