Homeowners insurance covers your home, its contents, and other assets against damage and theft. Personal liability coverage is an important part of your homeowners policy, because it extends protection to you, the home owner, in the event someone is injured on your property, but it can be complicated to assess your needs and ensure adequate protection.
What Does Personal Liability Insurance Do?
If you own a car, you’re probably familiar with liability coverage. It’s required in most states and helps you pay for accidents or damage for incidents where you are considered to be at fault.
The personal liability coverage that comes with your homeowners policy serves a similar purpose and offers protection against accidents that occur on your property, as well as other related incidents. For example, if a delivery person slips and falls on an icy walkway or your dog bites someone, you could be held responsible for his or her medical expenses.
In such cases, your liability coverage would assume the out-of-pocket expenditures for the injured person’s medical care up to the limits you have set on your policy. Your coverage would also pick up the tab for related expenses, such as pain and suffering, lost wages and even legal costs.
Unlike your auto policy, minimum limits are not state mandated in most locations. As a result, many property owners wonder how to determine the amount of coverage they need, or if they have set their limits appropriately.
Am I Covered?
Most states do not mandate liability limits for homeowners policies, because each property owner has different requirements. According to the Insurance Information Institute, the liability portion of your policy is there to not only pay for costs associated with injuries on your property, but to protect you in the event of legal action.
There are two things to consider when beginning to determine how much coverage you need: your level of risk and your net worth.
There are many factors that determine your level of risk, or in other words, how likely you are to suffer a claim or lawsuit. People who entertain frequently, own a trampoline, swimming pool or even a dog, are at a higher risk for injuries, and should consider carefully the limits they set on their liability coverage.
ACE Private Risk Services has put together a scorecard to help you determine your level of risk and the amount of coverage you need. The idea is to protect your assets, including your life savings, property, personal possessions such as boats, and more against potential lawsuits in the event of an injury for which you’re held liable.
The Simple Dollar has a guide that helps walk homeowners through the entire process of choosing an insurance policy for their home.
Your policy liability limits—in other words the amount you determine the insurance company will be responsible for paying in the event of a claim or lawsuit—should be enough to at least cover the cost of these assets, including cash as well as property.[i]
Most homeowners policies offer a $100,000 personal liability minimum. Coverage is available for higher amounts up to $500,000 in many cases, but considering that lawsuits can result in damages that run into the millions, that may not be enough.
The first step to securing enough coverage, is to understand your exposure. What is the total amount of your cash and property investments that someone could go after? In many cases, the personal liability limits on most homeowners policies won’t be enough, and supplemental protection is necessary.
Umbrella or Excess Liability
If you have investments, savings or property that is valued higher than your policy’s liability limits, consider buying an umbrella or excess liability policy.
Excess liability and umbrella policies provide you with extra protection. They kick in once you’ve met the personal liability limits associated with your homeowners policy.
Umbrella policies are purchased separately from your homeowner’s and provide you with higher levels of coverage as well as broader protection for things like slander, libel, and privacy invasion. Your standard homeowner’s policy doesn’t cover these types of things.
If you’re still unclear on how much personal liability insurance you need, BOLT Insurance Agency can help you understand your risk, present you with options, and help ensure you’re properly insured.
To find out how much liability insurance you should have on your home, click here.