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What is liability insurance?

Fact-checked with HomeInsurance.com

Liability insurance protects you in a lawsuit if you get sued for damaging someone else’s property. This type of insurance also covers damage caused by anyone else in your household or your pets. Liability insurance is automatically included in most homeowners insurance policies.

However, getting liability insurance and how much coverage you choose is a personal decision. You never expect to cause damage to someone else’s property or get involved in a lawsuit. But without liability insurance, you could be required to pay for your legal fees and cover the damages completely out-of-pocket if you’re found at-fault.

What is personal liability insurance?

Personal liability insurance is the portion of your homeowners insurance that protects you from lawsuits in the event that you damage someone’s property or a guest in your home gets injured. If you are involved in a lawsuit, your insurance company will help you pay for legal counsel and protect your assets.

This type of insurance covers events that take place inside and outside of your home. For instance, if your mail carrier slips on your icy driveway and sues you, your personal liability insurance will cover it. If your child’s friend cuts their foot on a piece of broken glass, your personal liability insurance can cover their medical expenses if they need stitches.

What does personal liability cover? 

Your personal liability insurance covers you in a variety of situations. Most commonly, liability insurance is used to pay for damages you cause to someone else’s property or their medical bills if an injury occurs that you were responsible for. Here is a comprehensive list of what your personal liability insurance covers:

  • Medical bills
  • Property damage
  • Legal fees 
  • Lawsuit verdicts after an accident 
  • Claimant’s pain and suffering expenses 
  • Life insurance death benefits for the claimant’s family 

If you’re held responsible for property damage or an accident, the victim’s lawyer may try to take a valuable asset, like your home, as a way to get compensation. However, liability insurance covers your assets, both current and future. Even if you go to court and are found at-fault, your assets cannot be taken from you. 

What doesn’t personal liability insurance cover? 

Personal liability insurance only covers you in certain situations, including the ones listed above. Your insurance only covers the person whose name is on the policy, and the family members living with them. Here are some situations that liability insurance doesn’t cover:

  • Injury or property damage related to your home business: If you run a business out of your home and one of your employees gets injured, they won’t be covered. In this situation, your home-based business insurance would cover the injury through workers’ compensation. 
  • Intentional acts of the insured: If you deliberately damage someone’s property, you will not be covered. For example, if your neighbor builds a fence that blocks your view, you won’t be covered if you intentionally knock it down and blame it on strong winds.
  • Damages to a car: If you accidentally drive a car into a neighbor’s mailbox, it won’t be covered by your personal liability insurance. This type of accident would be covered by your car insurance.
  • Damages from aggressive dog breeds: There are certain dog breeds that insurance companies deem as being more aggressive than others. Some examples are pit bulls, rottweilers and Great Danes. If you own a dog on the aggressive breed list and they damage someone else’s property or cause injury, you might not be covered by your personal liability insurance. 

How much does personal liability coverage include?

Like all types of insurance, personal liability coverage has a limit. That means the insurance company will only pay up to a certain amount to cover damages or medical bills after an at-fault claim. Most liability limits start at $100,000, although most insurance companies recommend $300,000 to $500,000 in coverage.

However, some homeowners may want a higher coverage limit for their personal liability insurance. In that case, you can look into getting an umbrella policy. An umbrella policy offers extra liability coverage and can increase your coverage limit to $1 million. If that’s not enough, you can usually increase your coverage in increments of $1 million. Before you can purchase an umbrella policy, the insurance company will probably require you to have a minimum of $300,000 of liability insurance on your homeowners policy.

Not everyone needs umbrella insurance. For many people, $300,000 is adequate. But certain people may want to increase their coverage level far beyond that. Here is a list of people who should consider getting an umbrella insurance policy:

  • People with significant savings
  • Business owners
  • Dog owners
  • Investment property owners
  • Pool or trampoline owners

If someone gets injured in your home, your personal liability insurance will also cover their medical expenses. It doesn’t matter who is at-fault. However, your personal liability insurance won’t cover medical bills if you intentionally injure the person. Coverage for medical bills usually starts at $1,000 and can be increased.

How much does liability insurance cost? 

The cost of liability insurance is different for every company and every homeowner. For instance, the state you live in will greatly impact the amount you pay for home insurance. Other factors like the size and age of your home play a role. Unlike other types of insurance, your personal liability coverage does not require a deductible. However, you can expect your premium to increase if you file a claim.

How do you file a personal liability claim? 

Filing a personal liability claim can be expensive. It usually involves multiple people, including you and your legal team, the victim and their lawyers and representatives from the insurance company. Who is legally allowed to file a claim can also be confusing.

In certain states, the policy owner has to be the one to file a claim. Other states allow either party—the policy holder or the victim—to file a claim. For example, if you’re a homeowner and someone slipped in your home and broke their ankle, you would want to file a claim. But in some states, the victim is legally allowed to contact the insurance company if you decided to not file a claim.

When you file a claim with the insurance company, they will first try to settle it without going to court. Sometimes paying the victim for damages or medical bills will keep a lawsuit at bay. If they can’t prove who was at-fault and the case goes to trial, your legal fees will be paid for by the insurance company.

The takeaway

Having personal liability insurance is important for homeowners. It protects you from lawsuits, which can be extremely costly without insurance. It also gives you peace of mind knowing that if an accident did happen, you would be covered by insurance. Before you purchase personal liability insurance, determine how much coverage you need. If you have high-value assets, consider upgrading to an umbrella policy. Most importantly, speak with your insurance company to learn how you can file a claim if an accident does happen.

Lauren Ward

Lauren Ward is a writer for Coverage.com. She specializes in all things personal finance, including insurance, loans, and real estate.

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