If you’re responsible for an accident that causes personal injury or property damage, you need personal liability to cover the cost of the damages. Without personal liability insurance, all costs would fall on your shoulders. These costs can run into tens of thousands of dollars or sometimes higher depending on how bad the incident is.
Personal liability coverage may help decrease the cost of covering the damages to a person or property. It won’t cover 100% of the damages, but it can decrease the total amount of money you must pay out of pocket, typically limiting your out-of-pocket costs to your deductible.
In this guide, we’ll help you understand how personal liability insurance works and when you should include it in your insurance portfolio.
What is personal liability insurance?
Personal liability insurance is coverage you can add to your homeowner’s, renter’s, or personal auto policy. You can also buy a standalone policy if you don’t have any assets to insure, such as a house or car.
Personal liability coverage pays for damage to other people or properties caused by you. For example, you have friends over for dinner, and one falls on the steps leaving your house. Your personal liability coverage would help cover the cost of the medical bills and any other damage that may have occurred.
Most policies include $100,000 in personal liability coverage. Still, you can buy additional coverage or buy an umbrella policy that covers additional personal liability in cases where you may experience a high loss.
How does personal liability insurance work?
Personal liability coverage is a part of many insurance policies, or you can add it to many policies. Just because you have personal liability insurance on your home doesn’t mean it only covers liability at home though.
It can cover incidents outside of the home that other insurance doesn’t cover. For example, it wouldn’t cover a car accident since your car insurance should cover it. But it may cover damage you caused to property while riding your bike.
If the incident or the damage you caused is terrible enough that it goes to court, your personal liability policy may cover the court costs, lawyer fees, and settlements you and the victim agree on outside of court.
What does a personal liability policy cover?
Like most insurance policies, personal liability policies don't cover everything. The common exclusions include:
- Damage caused by a car accident or with your car (However, unlike credit life insurance or gap insurance, it won't pay off the car loan)
- Damage caused intentionally or as a part of a crime
- Any damage or injuries to you or the people who live in your home
- Any business-related expenses or damage
Now that you know what a personal liability policy doesn’t cover, let’s look broadly at what it covers:
- Bodily injury caused by you or your pets
- Bodily injury occurring at your residence
- Property damage caused by you or a covered family member
How personal liability insurance works together with other policies
If you have personal liability coverage on specific policies, but they have limits, they can work together with umbrella policies. Here’s an example: The mail carrier falls on your steps and hurts his back. He needs surgery and is out of work for six months.
The total damage is $750,000. The coverage for personal liability on your homeowner’s insurance is $100,000, and your deductible is $2,500. After you pay $2,500 out of your pocket, your home insurance company will pay $97,500, leaving you with $650,000 in debt to cover.
However, if you have an umbrella policy, it will pick up the difference between what your home insurance will pay and the total cost of the damages.
Where to sign up for coverage
You can sign up for personal liability coverage with many different insurance policies you may need. For example, if you own a home, you need homeowner’s insurance because most lenders require it. Your home insurance policy may include personal liability coverage. Pay close attention to the limits, though.
Generally, home policies have $100,000 limits. However, you may be able to pay for extra coverage if you feel that’s not enough. You can also add personal coverage policies to your renter’s insurance or dwelling policy. It’s usually a part of the policy but always read the fine print since no two insurance companies have the same coverage options.
If you don’t own a home or rent one, you can buy a policy to cover personal liability as a standalone policy. The insurance companies you’d contact for other insurance policies, such as home or car insurance, also sell policies for personal liability. Like any policy, shop around to ensure you’re getting the right amount of coverage at premiums you can afford.
Some insurance companies also allow you to add personal liability coverage to a personal auto or watercraft policy. Suppose you want an umbrella policy for higher coverage amounts or ensure you and your loved ones are protected. In that case, you can also buy an umbrella policy from any insurance agent.
Again, read the fine print and ensure the policy covers what you need to avoid unpleasant surprises.
Get protected with the right policy
All liability insurance policies have exclusions, and personal liability insurance is no exception. Make sure you know what a policy does and doesn’t cover and compare it to your lifestyle to ensure all situations you may find yourself in are covered. Talk to your local insurance agent to find out what options you may have.
If coverage for personal liability is included in your home insurance policy, make sure it’s enough coverage for what you think you need. Even if you think you don’t have any personal liabilities, consider at least a small policy.
Unfortunately, anyone who leaves their house can find themselves liable for damage to someone or something. Whether you have kids, ride a bike, drive a car, or own a house, it's essential to get a personal liability policy. Having coverage to protect your finances is crucial, so you don't find yourself in a difficult financial situation.