How Much Personal Liability Coverage Do I Need on a Homeowner's Insurance Policy?
While owning a home has many advantages, it also comes with certain liabilities, such as your personal responsibility for accidents that occur on your property. Personal liability insurance is part of most homeowner's policies, and can help protect you against financial loss if, for instance, someone gets hurt in your home, but it's a good idea to review your policy's limits to make sure you have the proper amount of coverage.
Personal Liability Coverage
Most homeowners insurance policies provide four coverage components, including structure, personal property, temporary living expenses and personal liability protection. The first three components cover you against loss if there you suffer property damage due to a covered event, such as a fire or tornado. The personal liability component protects you against financial loss if you get sued for causing personal injury or property damage to other people. It typically covers the cost of defending you in court as well as paying for any damages awarded by the court. The personal liability component of your homeowners policy usually includes no-fault coverage for minor medical bills if someone is injured in your home.
Unlike minimum auto insurance limits, which are mandated by law in most states, homeowners insurance typically doesn't come with legally required minimums, although your mortgage company probably requires certain types of coverage. Minimum personal liability limits usually start at around $100,000, according to the Insurance Information Institute, but the institute advocates a minimum level of at least $300,000.
Factors to Consider
Numerous factors affect the amount of personal liability you should carry on your homeowners insurance policy, including your income and the value of your investments and other property. You should increase your liability limits if you have a pet, particularly a dog. Dog bites were responsible for more than one-third of homeowners personal liability claims in 2008 and cost approximately $412 million, according to the Insurance Information Institute. You could be personally liable for damage caused by a guest to whom you served alcohol, depending on the state where you live. If you host parties where alcohol is served, you might consider upping your personal liability insurance. If your home includes a swimming pool, hot tub, trampoline or other special feature that increases the likelihood of injury, you should increase your liability insurance. (Reference 3)
If your net worth is more than $300,000, SmartMoney.com website recommends protecting your assets with an umbrella policy in addition to your homeowners policy. You can buy an umbrella policy with $1 million worth of personal liability coverage for between $150 to $300 per year, according to the Insurance Information Institute. Umbrella policies only kick in after the personal liability insurance component of your homeowners policy is exhausted, so you would need to purchase both. The institute advocates carrying $300,000 of personal liability coverage in your homeowners policy and $250,000 of auto liability insurance before deciding whether you need the additional coverage from an umbrella policy.
- Insurance Information Institute: Home Buyers Insurance Checklist
- Insurance Information Institute: Should I Purchase an Umbrella Liability Policy?
- Insurance Information Institute: Lawsuits Can Take a Bite Out of Your Wallet; Be a Responsible Dog Owner
- Insurance Information Institute: Scary Thought: You Could Be Liable if Guests Drink Too Much At Your Halloween Party
- Insurance Information Institute: What Coverage is Included in a Standard Homeowners Insurance Policy?
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.