This article is part three in a series explaining the different coverages homeowners insurance includes. Read part one on contents coverage here and part two on dwelling coverage here.
Homeowners insurance doesn’t just cover your home and your stuff, it can also cover your liability.
Travelers explains, “The personal liability coverage within your homeowners policy provides coverage for bodily injury and property damage sustained by others for which you or your family members are legally responsible.”
Your home is probably one of your biggest assets and liability insurance helps protect it and your other assets from being used to pay damages if you are found legally liable for an injury or damage. Lawsuits can get very expensive and liability coverage can help with those costs.
Types of Coverage
There are two primary coverages offered under the liability part of your homeowners insurance policy: personal liability and medical payments.
Whether you realize it or not, there are many risks lurking around your home that could injure a guest or cause damage to a guest’s property. Personality liability coverage will help protect you from the costs of the consequences of those risks by paying to defend you in court should you be sued for damages. Personal liability can also cover things that happen off your property, like if your child breaks something valuable in someone else’s home or your dog bites the neighbor.
The medical payments coverage helps to pay for medical expenses for people injured on your property, though this does not extend to you or family members living in your home. For example, if someone slipped on your deck and broke an arm, the costs of X Rays and treatment could be covered under medical payments.
Your insurance agent can help you fully understand these coverages and how much you have to protect. You can explore if a supplemental umbrella insurance policy is required to help you protect all of your assets with your agent.
There can be situations where your liability coverage would not apply. It is important to review what is and isn't covered under your policy with your insurance agent, so you know exactly when your coverage will kick in.
If you don’t disclose a risky item on your property to your insurer, like a pool or dog, you likely won’t be covered for it. If something happened and you were to try to file a claim on the undisclosed risk, your entire homeowners policy could be voided. Many homeowners insurance policies also won’t cover claims that occur while you’re renting out your home to a paying guest or conducting business from your home - that would require a specialized policy. Speak with your insurance agent to learn more about these exclusions.
Injuries on your property that are intentionally caused are also not covered. If someone trips and falls on your property, their injuries would be covered, if you pushed them… not so much.
Determining How Much You Need
InsuraMatch insurance agent Seth Miller advises, “I recommend that any person owning or renting property considers choosing $500,000 in liability coverage if it’s offered by their insurer. If you are faced with a lawsuit, this coverage is what will protect your assets. I encourage my clients to consider as much protection as possible for their assets. Often the price difference between $100,000 and $500,000 in liability coverage is minimal compared to the increased amount of coverage you’d get. It’s a good value and it could be a lifesaver if you were taken to court.”
Agent Seth continues, “Many people look at their assets and realize that the liability limits offered on a traditional home insurance policy don’t provide enough coverage. If this is the case, you should consider an umbrella policy. Umbrella policies provide additional liability coverage on top of your auto and home policies.”
He adds, “You should especially consider an umbrella policy if you have children, a pool, a trampoline, or young drivers in the household.”
To determine how much you have to protect, you’ll want to figure out the worth of all of your assets. An insurance agent or financial planner can help you with this process and help you make sure you’re not forgetting anything that should be protected.
As we’ve said before, insurance is especially important for the wealthy, as they have more assets to protect. “The more insurance you have, the less likely it is that someone’s going to be able to get at your assets,” says Bob Passmore, assistant vice president of the personal lines policy at the Property Casualty Insurers Association of America and contributor to our post on insurance and wealth.