Personal Liability Insurance: How Much Does It Cost?

Most homeowners insurance policies include personal liability coverage. Personal injury and property damage are covered under the personal liability portion of your homeowners insurance. If you injure or damage someone else's property, your homeowners insurance provides financial protection if you are found legally liable. Because increasing your personal liability coverage limit is usually inexpensive, we recommend purchasing enough coverage to protect your assets. Otherwise, you may expose yourself to potentially significant financial losses.

What is personal liability insurance?

If you are sued for injuring someone or destroying someone's property, personal liability insurance will cover the costs of the lawsuit. It is included in most residential insurance policies, including homeowners, renters, and condo policies, and can also be purchased separately. Filing a personal liability claim is similar to filing any other type of insurance claim. We recommend contacting your insurance company as soon as you become aware that you may be liable for property damage or bodily harm.

A standard homeowners insurance policy's personal liability coverage protects you against two things: bodily injury and property damage caused by you or residents of your home. The following are examples of situations in which you may require personal liability insurance.

Body Injury: Assume your dog bites a mail carrier on your property, causing the carrier to seek medical attention and miss work. The mail carrier may decide to sue you for expenses such as medical bills, lost wages, and emotional distress. If you don't have personal liability insurance, you'll have to pay the expenses out of pocket if you're found legally liable.

Property Damage: If a tree on your property falls over during a thunderstorm and damages your neighbor's roof, you may be liable for the damage. Your neighbor may then decide to file a lawsuit against you in order to receive financial compensation for the damage to their roof. Again, without personal liability insurance, you would be solely responsible for the damage.

While those incidents occurred on your property, bodily injury and property damage coverage extends to you and members of your household who are not on your property.

• For example, if your dog escapes and bites someone on the street, your home insurance personal liability coverage will still cover you. Similarly, if you're running in the park and knock someone over, causing them to break a bone, any medical bills you incur will be covered by the liability portion of your home insurance if you're found to be at fault.

In the event of a car accident, personal liability coverage would not apply. In that case, you'd need a car insurance policy that includes bodily injury and property damage coverage.

Does homeowners insurance cover personal injury?

Personal injuries are covered by homeowners insurance as long as your policy includes personal liability coverage, which most policies do. However, your personal liability insurance will not cover every injury. The only injuries covered are those caused by your negligence. Intentional acts are thus not covered by your personal liability insurance. Furthermore, your personal liability insurance only covers other people's injuries, whereas any injuries you sustain are covered by health insurance.

How much personal liability coverage should you have?

The greater your financial assets, the more liability coverage you should obtain. To reduce the risk of financial loss if you are sued, your liability coverage limit should be as high as you can afford.

• For example, if your net worth is $600,000 and you are sued for $400,000 in damages but only have $100,000 in coverage, the plaintiff can seize your assets to cover the remaining $300,000 in damages. Plaintiffs are more likely to pursue you if you have a high net worth because you can pay out a judgment more easily.

If you have $100,000 or more in assets, you should consider purchasing an umbrella policy or personal excess liability insurance. Both act as supplemental coverage with a higher limit.

In other words, an umbrella policy and personal excess liability insurance kick in after your homeowners coverage limits have been exhausted. An umbrella policy extends coverage, whereas personal excess liability insurance supplements the underlying policy.

An umbrella policy or personal excess liability insurance would kick in for the remaining $300,000 in the scenario above, protecting your assets. Keep in mind that your policy's coverage limits will vary.

Home insurance personal liability: how much does it cost?

A higher limit for personal liability coverage is relatively inexpensive to purchase. This is especially true when compared to other homeowners insurance changes, such as increasing dwelling coverage. The table below shows the cost of increasing your personal liability coverage limits on a $200,000 State Farm policy.

According to our calculations, tripling your personal liability coverage costs only $15 more per year. Remember that the exact amount will vary depending on your home's location, among other things. However, increasing your personal liability coverage limits should not result in a significant increase in rates.

Despite the fact that umbrella policies provide significantly higher coverage limits, the cost of personal umbrella liability policies remains low. A personal umbrella liability policy with $1 million of coverage will cost you between $150 and $300 per year. Remember that a personal umbrella policy provides supplemental coverage, which means it kicks in after your homeowners or auto insurance policies have been exhausted.