Policy Detail - Do I Really Need to Increase My Liability Limits?

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Let’s face it. We live in a litigious world. And if someone sues you, it can get expensive. Like, life-savings-down-the-drain expensive.

Lucky for you, homeowners insurance comes complete with personal liability insurance that can help to cover these costs in certain situations. So what’s the problem? The personal liability limits of your standard homeowners policy may be woefully insufficient to cover your needs. To better understand whether you should increase the liability limits on your policy, read on.

Understanding the Basics

Tell me again what personal liability coverage is?

The personal liability coverage in your homeowners insurance policy may apply in situations in which you (or another covered person) are legally responsible for bodily injury or property damage to others. It may cover the costs of medical bills, awarded damages, and legal defense fees up to your liability coverage limits. It may even cover some incidents that don’t take place on your property.

Ultimately, personal liability coverage can help you pay significantly less out of pocket if you’re sued for bodily injury or property damage. Given soaring legal costs here in the US, that coverage can make a massive difference for your financial health and future.

Following are example situations in which personal liability coverage may be activated:

  • Bodily injury: Your postman slips and falls on your unshoveled sidewalk. One of your kid’s friends is hurt on your trampoline. A guest falls down your basement stairs, breaking her leg. Your dog bites someone you’ve hired to work on your property.
  • Property damage: Your husband, reliving his college baseball glory days, breaks your neighbor’s giant picture window. Your five-year-old draws all over an expensive painting owned by a friend. Your dog chews several holes in your neighbor’s fence. A tree in your yard falls smack on top on your neighbor’s roof.

What are the limits on my policy?

Check Section II of your policy to be sure. Most standard homeowners insurance policies provide a basic minimum limit of liability of $100,000 to $300,000.

What does that mean?

Your Section II conditions will explain that — regardless of the number of insured persons covered by your policy, the number of claims made, or the number of people injured — the “per occurrence limit” is the most that will be paid from any single occurrence.

For example, let’s say you have a limit of $100,000 in personal liability coverage. If your deck collapses during a party, injuring five people who all decide to sue you, you’re still only covered for a total of $100,000.

Understanding Your Exclusions

What’s not covered by my policy?

Make sure to read your policy or talk to your agent to understand the limits of your coverage. “Section II Personal Liability” will include details and exclusions specific to your policy.

What’s never covered?

Personal liability coverage is ALWAYS excluded for:

  • Intentional or expected injuries. If you meant to injure someone or damage something, or knew that your actions would cause injury or damage, it’s not covered. (One exception: if you’ve used reasonable force to protect people or your property.)
  • Injuries to covered persons. Your personal liability coverage is designed to cover bodily injury to others — not injuries to you, your family, or any other covered persons.
  • Auto accidents. This liability will typically be covered by your auto insurance.
  • Business activities. There are two exceptions, however, which are covered:
    • An insured person under the age of 21 who’s involved in part-time or occasional self-employment activities and who has no employees.
    • The renting, or the holding for rental, of an insured location on an occasional basis — either for use as a residence or in part as an office, studio, school, or private garage.

Determining Whether You Need More Coverage

How do I know if I need more liability coverage?

The unvarnished truth is that $100,000 is only going to cover your legal costs in a small percentage of applicable situations. That’s why the Insurance Information Institute recommends that homeowners consider purchasing at least $300,000 to $500,000 worth of liability coverage.

To find out what’s right for you, it’s as easy as talking to your agent or advisor. They can advise you on how much coverage may be sufficient for your needs. They may ask you to share additional details about your home, personal property, covered persons, lifestyle (e.g., hobbies), and work. It’s also possible that an umbrella policy, which adds protection beyond policy limits, is worth considering.

How can I increase my limits or coverage?

Your agent can help you make changes to your policy or buy additional policies. You may also be able to make changes online.

If you need additional liability coverage for business activities, it’s likely best to simply purchase a separate business policy. That said, there are a handful of “business” endorsements available covering a limited range of activities. Ask your agent for details.

Still have questions about your personal liability coverage? One of our expert advisors will be happy to answer your questions or do a free policy review. Give us a call at (303) 302-9927 or drop us a note!

Cover Photo by Saffu on Unsplash

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