An essential part of your homeowners insurance policy is the personal liability coverage that it offers. Liability coverage protects homeowners in the event that claims or lawsuits over injury or property damage are made against the homeowner or members of the insured household.
Understanding Liability Insurance
Standard policies include $100,000 worth of liability coverage, but these limits can be extended to provide greater protection. Many experts recommend that homeowners pay additional premiums in order to get coverage limits between $300,000 to $500,000 in order to have adequate protection for themselves, their families and their homes.
Liability coverage only applies in situations where you or a member of your household is at fault. So, if an injury occurs on your property and it wasn’t caused by negligence, your insurance company will not pay any claim made on your property and will instead use your coverage to pay for lawyers to defend you against any resulting lawsuits.
This can cover a range of events, from someone slipping and falling on your property to getting bit by your dog. Protection even extends to certain damages that occur off of your property, such as your child breaking a neighbor’s window when throwing a ball in the backyard.
Because of the variety of circumstances in which liability insurance can apply, it might seem confusing to anticipate when your liability insurance would apply. However, that’s not something to be overly concerned about, as your insurance company or the legal system will make that decision.
Your primary responsibility is to make sure you inform your insurer in a timely manner, as delays in the notification can result in them denying your claim, which leaves the financial burden solely in your hands. The determination of fault can be made by the insurance company and/or in court after your notification, depending on how the events proceed.
Knowing What to Expect When a Claim is Made
In cases of an accident occurs on your property, you or the injured party would notify the insurance company of the claim. At that point, the company would assign an insurance adjuster to make a determination of whether or not a pay-out on the claim would be made and, if so, how much money with which the claim would be settled.
To make that decision, the adjuster would first gather relevant information, by talking to you, the injured party, and any witness, as well as by collecting medical records and receipts for care needed as a result of the accident. At that point, if the adjuster decided there was a need to pay the claim, they would offer a settlement to the injured party.
From there, it is up to the injured party to accept or decline the claim. If the injured party isn’t satisfied with what was offered or believes your negligence caused more financial loss, due to perhaps lost wages or other financial damages, then they can sue you. In that case, your liability coverage limit would go towards representing you in court.
If the case ended in a liability judgment against you, your insurance would cover the cost up to your liability coverage limit under your homeowners policy.
Deciding if You Need an Umbrella Policy
As you can imagine, in the event that you are sued, the legal fees that would begin to eat away at your liability limit could significantly diminish your remaining liability insurance coverage, even in fairly simple cases.
Since the financial risk of lawsuits can be overwhelming, especially in more litigious areas, many people prefer to have even more protection than standard liability coverage can offer.
Beyond extending standard liability coverage, you can also purchase umbrella policies. Generally speaking, insurance companies won’t sell you an umbrella policy if you haven’t already raised your basic liability coverage to at least $300,000 worth of coverage on your home insurance and $250,000 of liability coverage from your car insurance as well.
In the event that your standard liability coverage limit is exceeded, umbrella coverage will start covering the financial costs of any liability event or ongoing legal battles.
An umbrella policy with coverage of $1,000,000 will usually cost between $150 to $300 more on your annual premium. The actual amount depends on multiple factors, including how much coverage you already carry through your homeowners insurance policy as well as how much risk you are calculated to carry.
The amount of risk you carry can be determined based on your age, your income, where you live, your occupation, as well as what types of property you own and how much. It’s important to understand that, although it can supplement your liability coverage from your homeowners policy, an umbrella is a completely separate policy.
Additionally, some umbrella insurance can offer other types of protection, such as financial protection against things like invasion of privacy, slander, and libel. In cases where you would need to make a claim, your umbrella insurance coverage would go toward representing your interests in court should you need to sue another party to protect yourself and your reputation.
