Think your homeowners or renters insurance policy is just about covering your physical home and the stuff inside it? Think again. Most homeowners and renters policies include personal liability insurance coverage, as well — an important type of coverage that can really come in handy if you end up needing it.
Personal liability insurance coverage pays out in the event someone is accidentally hurt or has their belongings damaged on your property, as well as accidental property damage that you or your family may inflict on someone else outside your home. Personal liability coverage helps keep you from paying out of pocket for legal fees and medical bills that can arise from these situations — which can avert a financial catastrophe, given how expensive those costs can be.
Read on to learn more about this important type of insurance coverage and how to ensure you have it (and enough of it, at that).
What Is Personal Liability Insurance?
Now that we’ve got a basic definition of personal liability insurance — insurance that covers expenses you may be liable for in case of accidental injury or damage — let’s take a look at an example.
Say you have a friend over at your house and they accidentally fall down the stairs into your basement, breaking their ankle (and getting really freaked out) in the process. Even a good friend might sue you for damages under these circumstances, not least because medical expenses are so, well, expensive. If your friend doesn’t have medical insurance, the broken ankle alone might cost them up to $2,500 if it’s a simple break that requires a cast… or orders of magnitude higher if it requires surgery.
Chances are you don’t have thousands of dollars to pay out of pocket for your friend’s medical bills, not to mention any legal fees you might incur if they should decide to actually bring you to court on top of all that. Personal liability insurance can come to the rescue here, paying out up to your coverage limit so your assets are protected.
Along with accidental injuries that occur in your home or on your property, personal liability insurance can also protect you from accidental damages perpetrated by your family. For example, maybe your 12-year-old boy accidentally throws a football through your neighbor’s window (oops), shattering the glass and also breaking an expensive picture frame in the process. Personal liability insurance can payout in this instance, too. Phew!
What Does Personal Liability Insurance Cover?
Personal liability insurance can certainly be a godsend in applicable situations, but it doesn’t cover everything. You should always review your policy information to ensure you know exactly what’s covered by your specific plan, but generally speaking, here are the types of expenses personal liability insurance covers:
• Medical bills incurred by visitors who accidentally get injured at your home or as a result of your negligence
• Legal fees incurred if a visitor sues you for injury or damages to their property
• Actual property damage sustained by a visitor to your home, or as a result of your negligence
• Bodily injury and property damage caused by your pets or children, both on and off your home property
As with most other forms of insurance, even covered damages can only be paid up to the given limit written into your policy. For many homeowners insurance plans, that limit is $100,000 per occurrence at a minimum, though there may be specific clauses about how those monies are paid out (more on this in just a minute when we discuss medical payments).
If you decide you need additional coverage, you may be able to obtain it through your homeowners or renters insurance policy (though it may drive up your premium cost). You might also choose to purchase an umbrella insurance policy, which extends your personal liability coverage substantially. Umbrella insurance can be a good idea for those with high net worths or who are at high risk of a personal liability claim.
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Most personal liability policies will pay out for the medical expenses of people accidentally injured on your property, even if they don’t sue you for those damages (or you’re not otherwise legally obligated to pay).
However, these medical payments come with their own limits, which may be as low as $1,000 per person. Again, you may be able to purchase higher amounts of coverage, but it’s important to thoroughly review your insurance policy to understand exactly what you’re getting.
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What Is Not Covered by Personal Liability Insurance?
We’ve talked a lot about what personal liability insurance covers. But what, specifically, is excluded?
Personal liability insurance does not cover:
• Injuries or property damages caused intentionally by you or your family — liability insurance is for accidents only
• Liability resulting from a car accident — that’s what car insurance is for!
• Accidental injuries or damages you or your family sustain in your own home
• Any bodily injury or damage that occurs as a result of business or professional activities, even if those activities are occurring in your home (that’s why you need a separate business insurance policy)
Of course, the list of what’s not covered by a personal liability insurance plan is always going to be substantially longer than the list of what is covered. If you have questions about your coverage, speak with your insurance agent directly or refer to your policy documentation for full details.
What Else You Need to Know About Personal Liability Insurance
Like other portions of your homeowners or renters insurance policy (or any policy, for that matter), when it comes time to file a personal liability claim, you may still be responsible for some of the expenses. This is called the deductible, and it’s the amount you pay out-of-pocket to cover the damages you’re filing the claim for.
Many homeowners insurance policies have a deductible of $1,000. So, for example, if you’re held accountable for $30,000 of medical and legal fees resulting from a personal liability claim, you’d pay $1,000 and your insurance company would pay $29,000 toward those expenses.
The deductible is separate from the premium cost you pay on a monthly, quarterly or annual basis simply to keep the policy active. And while it may feel like a burden, even a high deductible is a way better deal than having to pay for the entire cost of the damages out of pocket in most cases.
Personal liability insurance is a type of coverage that protects your assets by paying for bodily injury and property damage accidentally sustained by visitors to your property (or perpetrated by you or your family off your property). This type of coverage is generally baked into a homeowners or renters insurance policy, though you can also purchase additional umbrella insurance coverage to extend your personal liability limit.
While personal liability coverage — and homeowners/renters insurance as a whole — is certainly an important kind of protection, it’s not the only one you should rely on. If you have family members and loved ones who rely on your earnings, you should consider purchasing life insurance, which will help ensure they’ll continue to be taken care of should something happen to you.
SoFi has teamed up with Ladder to offer competitive, easy-to-understand life insurance policies that range from $100,000 to $8 million, and we’ll even help you draft your will and estate plan for free. We don’t require medical tests for eligible applicants, so you can get a decision in minutes — today.
Photo credit: iStock/Edwin Tan
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