Personal Liability Insurance: Do I need it?

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What is personal liability insurance?

If you’ve ever looked at insurance policies and wondered, “what is liability insurance and why do I need it,” we can help. 

Personal liability insurance covers homeowners or renters if they are at fault for property damage or bodily injury that occurs on their property or beyond it.  After you pay the deductible amount you’re responsible for, your insurance policy pays legal costs if you’re sued, expenses for property damage caused by you or members of your family or medical expenses for injuries that happen on your property. This insurance excludes anything that happens in your car, which is when you need to rely on your auto policy.  

If you don’t own or rent your home, you can add personal liability coverage to your auto policy or buy a standalone personal liability insurance policy.  

Who needs personal liability insurance?

If you’re responsible for your living expenses, you should have some form of personal liability insurance.  To determine coverage amounts, deductibles, and limits, you should consider your net worth and the value of your assets. Homeowners insurance personal liability coverage limits range from $100,000 to $300,000.  If you have a high net worth and more assets, consider increasing your personal liability coverage.

Benefits of personal liability insurance

If you’re sued for property damage or personal injury in your home or away from it, your personal injury coverage can help you pay for legal counsel to represent you, litigation cost or settlement costs.  In a lawsuit, the other side will be looking for money. Attempting to seize your house or assets is one way to collect if they win in court. Your personal insurance policy helps to protect your assets and your net worth. 

Having personal liability insurance coverage helps limit out-of-pocket expenditure if you’re at fault for an accident, property damage or personal injury.  

What’s covered with a home insurance policy?

Your homeowners policy covers property damage and personal injury in your home and beyond it if you cause property damage or personal injury to someone outside your home. Your family, including kids and pets are covered, which can be helpful if your kids accidentally damage someone else’s property or your large dog injures someone.  Your homeowners policy personal liability coverage will cover your legal costs if you are sued for property damage or personal injury stemming from an accident or negligence. 

Your homeowners policy coverage won’t be applicable in every situation. For instance, if you harm another person or damage property intentionally, you won’t be covered by your homeowners insurance policy. You won’t be covered for damages from libel and slander unless you have an umbrella insurance policy. You also won’t be covered for car accidents or other incidents involving your car, which should be covered by your auto policy.  Accidents at work or in a business environment should be covered by your company’s business liability insurance policy. 

How much does personal liability insurance cost?

According to the National Association of Insurance Commissioners (NAIC), the average annual cost for a homeowners insurance policy is $1,192. A portion of that cost pays for your personal liability coverage. The amount and percentage that pays for the personal liability coverage portion of your policy depends on your coverage limits and where you live. According to the Insurance Information Institute, Florida had the highest average homeowners insurance premium at $1,993 in 2015, and Oregon had the lowest at $643.

 How to get personal liability insurance

If you have a homeowners insurance policy or a renters policy, check your personal liability coverages and limits. As your net worth or the worth of your home and belongings increase, contact your insurance broker to make sure that you have adequate coverage in place. You can also add personal liability insurance to your auto policy or purchase a stand-alone personal liability policy.

How much liability insurance do I need?

What does liability insurance cover? It will only cover up to the amount of insurance you get.  Most standard homeowners policies include $100,000 to $300,000 in personal liability coverage.  

It may be hard to imagine exhausting your homeowner’s insurance standard policy limit of up to $300,000 for personal liability or an auto insurance policy limit of up to $250,000. But if, for example, your child accidentally burns someone else’s house down, you could be liable for a lot more than $300,000 in property damage and personal injury claims. In such a situation, a lawsuit could wipe out your entire net worth including your savings, your home’s equity and your assets. 

You should also consider your future earnings, whether you own multiple residences and if you have teenagers when you decide how much liability insurance you need. Depending upon the assets you want to protect, it can be beneficial to consider adding excess liability or umbrella insurance coverage.

Personal umbrella insurance is insurance coverage purchased in addition to other insurance policies, such as homeowners insurance, renters insurance or auto insurance. An umbrella policy provides insurance coverage where other policies won’t, typically increasing your coverage to $1 million, and as much as $2 million for about $250 to $500 more per year

An umbrella policy can provide coverage for liability claims arising from slander, false arrest, defamation of character and libel, none of which would be covered on a standard homeowners insurance policy or auto insurance policy. It can also provide additional homeowners coverage for “attractive nuisance,” features on your property, such as a pool area or a skateboard ramp in your driveway. You may also benefit from having an umbrella policy if you play organized sports or if you’re a professional whose occupation may represent a liability risk.

Your individual coverage needs will vary depending upon your personal assets, your net worth and where you live. Contact your insurance broker to evaluate coverages in your homeowners or renters policy or shop around for better coverages and rates from other insurance companies. read the fine print in any quote or insurance policy to ensure you’re getting the personal liability coverage you want.