Not all homeowners insurance exists to protect you and your loved ones when bad things happen to you. Though it’s true that a tree could fall on your roof or that a burglar could break into your place and make off with your belongings, those aren’t the only potential times insurance could kick in. Liability insurance is meant to protect you and other people when bad things happen to them.
What is liability insurance? It gives you financial protection if someone outside of your household is injured or has their property damaged by you, your pet or someone in your family. According to the Insurance Information Institute, approximately one in 1,000 homeowners policies have a liability claim, and of those roughly one in 15 have a claim each year that results in an insurance payout. In these cases, it’s good to have insurance that has you covered when you’re deemed responsible.
Benefits of personal liability insurance
Personal liability insurance covers you or other residents of your household that are deemed legally responsible for property damage or bodily injury suffered by others while on your property. This insurance means that you won’t have to pay legal fees or medical bills out of pocket.
For example, if a guest falls down the stairs in your home and suffers a serious injury, they have recourse to sue you or demand that you cover their medical bills. Personal liability insurance covers those costs up to the monetary value of the policy’s limit. Because it takes the financial burden of a guest’s accident off of your shoulders, personal liability insurance is extremely valuable to policyholders that opt for it.
Who needs personal liability insurance
Trying to anticipate who is a good or bad candidate for personal liability insurance is a job best left to a crystal ball. Nobody can predict the future or the unintended accidents for which you or someone in your household may be held accountable. What is certain, however, is that if you’re responsible for an injury suffered by someone else or for damaging someone else’s property and you aren’t protected, the financial blowback may be more than you’re prepared to handle.
If you think that your home is a place where accidents might take place, your best bet is to cover yourself with personal liability insurance. Maybe you have a dog or live in a place where it rains a lot, which could make your driveway slippery. You might want to keep your finances protected with liability insurance.
What does liability insurance cover?
Every homeowners insurance policy and the personal liability coverage within it is different. Because of this, it can be difficult to predict what will or won’t be covered by a particular provider. With that being said, a liability insurance definition typically consists of the following coverage pillars that tend to pop up repeatedly in one policy after another. These include:
- Medical bills resulting from injuries sustained by visitors to your home.
- Legal fees in the event that you’re sued over an accident that took place in your home and you require defense.
- Lost wages resulting from an injured party’s inability to work and earn wages for a significant period of time.
- Death benefits awarded to the family of someone who has a fatal accident on your property.
- Away-from-home coverage, which protects you if you are found responsible for damages in a place away from your home, such as a hotel.
Also consider what kinds of things are unlikely to be covered by a personal liability insurance policy. Obviously, if someone purposely tries to injure themselves or damage their belongings while on your property for financial gains, it’s unlikely that personal liability insurance will come into play. Liability insurance is also not applicable if the person injured on your property is you or a family member that lives with you. Finally, if you run a business out of your home and suffer an injury related to that business, it is unlikely that liability insurance will cover any resulting expenses you incur, though in some cases, homeowners insurance policies provide for riders related to home businesses.
In such cases, check with your provider to see what is and is not covered on your policy.
How much will it cost?
As personal liability insurance is generally included in homeowners insurance, you don’t necessarily pay for this type of coverage by itself. With that being said, the premium on your homeowners insurance is likely to vary based on the coverage limit that you set for your personal liability insurance. The higher your coverage limit, the more likely you are to pay in premiums from one month to the next.
Further, if you find that the liability insurance coverage limit in your policy is insufficient, you can add a personal umbrella policy that extends your coverage and can cover you in circumstances where costs owed exceed the dollar amount of your initial liability coverage. An umbrella policy will cost more and is something to consider when calculating the overall costs of personal liability insurance.
How do claims work?
The claim process for personal liability insurance depends on the circumstances of the accident. In some cases, a person who gets hurt on someone else’s property may ask that person to cover their medical expenses using their liability insurance. In that case, the homeowner would file the claim on behalf of the injured party.
In other cases, however, the homeowner may not believe that they are responsible for an accident, thus refusing to file the claim themselves. Situations like these can escalate to legal matters, in which case the injured party would need to file a suit and the homeowner would need to file a claim for legal defense.
Some claims processes depend on the state where the incident occurred. In some states, the victim can file a claim against the responsible party’s insurance company directly. In others, only the responsible party is allowed to file the claim. If the homeowner doesn’t believe that they are responsible and refuses to file a claim, such cases can end up turning into long, drawn-out legal affairs.
How to get personal liability insurance
Personal liability insurance is a standard component of almost every homeowners insurance policy on the market. Therefore, obtaining personal liability insurance generally isn’t any more complicated than signing up for a homeowners insurance policy.
With that in mind, the coverage limits for liability insurance are sometimes not sufficient enough for the policyholders that they cover. On such occasions, extend coverage by purchasing a personal umbrella policy, which can bridge the gap between what your personal liability coverage pays for and the leftover amount due as a result of an accident.
Other forms of personal liability insurance
In addition to the personal umbrella policy noted above, one other common form of personal liability insurance that you’ll see some providers offer is home business insurance. This coverage protects policyholders like freelancers who use their home as a space from which they conduct business. If an accident occurs at their home that is related to their business, the business liability insurance protects the policyholder from third-party claims or a formal lawsuit that they might otherwise have to pay out of pocket.
As was mentioned in previous sections, the types of liability coverage that are included in a standard homeowners policy can vary from provider to provider, and it’s not uncommon to see options like death benefits, lost wages and other forms of personal liability insurance offered as add-ons in cases where they are not initially included. Checking with providers when you seek a quote is a great way to find out exactly what your policy includes.
How to save on personal liability insurance
To save money on your personal liability insurance, consider what factors contribute to the price that you pay for your liability coverage.
One major factor is the monetary amount of coverage that you get in the event of an accident. Commonly, you’ll see policies start out with $100,000-worth of coverage and go up from there. Certain umbrella policies offer coverage in the millions of dollars. This will afford you greater peace of mind knowing that you likely won’t have to pay anything out of pocket, but the higher your coverage limit, the more you pay each month in premiums.
Thus to save money on your liability policy, consider two things. First, how much financial coverage do you need, given your circumstances? If you talk with a provider and determine that your existing coverage limit is enough given your habits, you can save money by keeping your current limit as is or possibly even reducing it. Secondly, what types of additional coverage do you need? As we’ve noted, providers can set you up with additional liability coverage, but if it doesn’t apply to the risks you face, there’s no need to fork over extra money for it each month.
By being mindful of what coverage you actually need and the extent to which you need it, you can save yourself a lot of money in premiums.