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How homeowners liability coverage can protect you

November 17, 2022, 9:50 PM UTC
Photo illustration of an umbrella casting a spotlight over a large crack in the ground.
It covers property damages, medical, and legal fees for accidents you are responsible for.
Photo illustration by Fortune; Original photos by Getty Images

When hosting your friends and family for a gathering, you don’t anticipate someone sustaining a life-changing injury. But unfortunately, accidents happen. Liability coverage on your homeowner’s insurance can help you cover the costs associated with injuries and property damage when these incidents occur. 

What is liability insurance? 

Personal liability insurance is a part of your home insurance policy that protects you against lawsuits for injuring or damaging someone else’s property. This coverage also extends to other members of your household, including pets.

For instance, let’s say you are throwing a pool party and your neighbor slips on the deck. Your neighbor may choose to sue you for any medical expenses related to the pool injury. At this time, your liability insurance will kick in and pay for both your legal fees and the medical expenses. This prevents you from facing the financial ruin of paying for the expenses out-of-pocket. 

Now, let’s say your neighbor chooses not to sue you, but needs your help paying his medical expenses. In this case, your insurance company may still cover these costs as a gesture of goodwill. 

What does liability insurance cover? 

Liability insurance covers your attorney fees if you are sued following an incident that causes injury to someone outside of your household or damages someone else’s property. This includes any medical expenses and associated payments awarded in a lawsuit. 

Here’s what liability insurance covers:

Medical payments for guests

If someone is injured on your property, your liability insurance may choose to pay for their medical expenses either as a result of a lawsuit, or as an act of goodwill. The coverage financially protects you from being held personally responsible for any expenses incurred. 

Let’s say someone new comes over to your house and your dog bites the stranger out of fear. This person seeks medical attention after being bitten and receives a bill for the emergency room visit. Your liability insurance would kick in if that person then decides to come after you for damages, says Wilson. 

Damages to another person’s property

If you cause an accident that unintentionally damages another person’s property, your liability coverage may help pay for these damages. 

Let’s imagine your children are playing soccer in the backyard. Halfway through the game, one of the kids kicks the ball through the neighbor’s window and shatters it. Your liability insurance would also kick in and pay for the window repair. 

Legal fees 

If someone is injured or their property is damaged in an accident, they may decide to sue you. In this case, your liability coverage will help you pay for any legal fees, regardless if you are responsible for the accident. 

For instance, let’s say your postman is attempting to deliver a package when he slips and falls on your porch. During the fall, he sustained life threatening injuries and decides to sue you for payment. Instead of paying for an attorney out-of-pocket—which could cost you thousands of dollars—your insurance company will step in and cover these costs. 

But, there is a limitation on what liability coverage will pay for if you are sued. 

Now let’s say your postman slipped because you forgot to salt your porch. Your postman decides he wants to be compensated beyond the amount of his medical bills to punish you for your negligence in salting the porch. This additional compensation request is called punitive damages, which is not covered by liability coverage. 

Liability coverage limits 

How much your liability coverage will pay out is limited based on your policy limit, which typically ranges from $100,000 to $500,000. When determining how much coverage you need, consider your overall financial situation, the risks in your home, and the items on your property, says Ted Olsen, vice president of Goosehead Insurance. 

Let’s say a lawsuit determines you’re responsible for an injury a guest sustained while at your house and the judge orders you to pay $500,000 in medical payments. If this settlement could potentially consume your net worth completely, then consider opting for the maximum amount of coverage offered. 

On the flipside, certain items like pools may increase the risk of a guest being involved in an accident and filing a liability claim against you. Additionally, recreational vehicles like snow mobiles, four wheelers, and jet skis may pose a higher risk of a claim. Because of this, the Insurance Information Institute recommends increasing the minimum coverage limit to at least $300,000 if you possess any of these items. 

“Going from $100,000 to $500,000 might cost you $10 to $20 a year, so it’s inexpensive to go to the top end,” says Olsen. “It’s important that you have enough coverage when something like that happens.” 

If you have maxed out your liability coverage but feel you need additional protection, you might also want to consider adding an umbrella liability policy. This adds additional coverage beyond your liability coverage. 

Is liability insurance only available for your home? 

No, you can purchase liability coverage on your car, or a recreational vehicle like an ATV, golf cart, snowmobile, or dirt bike. It is also available for boats and jet skis. In these cases, liability coverage helps pay for bodily injuries and property damages for those impacted by the incident. 

For example, let’s say you and your friend go snowmobiling. Your friend accidentally hits a mailbox and breaks his arm. Your liability coverage on your snowmobile would pay for both the damages caused to the mailbox and any medical expenses incurred during the accident. 

It’s important to note that this coverage is separate from your homeowner’s insurance. You need to purchase additional coverage to insure these items. 

What is not covered by liability insurance? 

Generally, liability insurance helps you pay for expenses relating to an accident that occurred where another person is injured or their property is damaged. Your liability insurance would not cover your personal medical costs or those of a member of your household. It also does not cover damages to your own property—even if the damage is caused by another person. 

There are a few more instances where your liability insurance would not kick in, including:

  • Punitive damages in a lawsuit
  • Intentional damages, such as purposely injuring a guest
  • Criminal acts, such as arson that burns down your neighbor’s property
  • Damages caused by normal wear and tear, including animal and insect damage
  • Injuries or damages related to a business that is ran out of your home

The takeaway 

Unfortunately, accidents happen and sometimes the costs associated can be devastating to your financial security. Liability coverage is meant to be a proactive way to plan for any unexpected accidents that may occur. It’s important to be transparent with your insurance agent about the items and potential risks in your home, so they can help you get sufficient coverage. 

“Liability, to me, is the most important reason we have insurance because it is the one thing that can completely change our life,” says Olsen. “Simply because someone else’s life has changed for the worse.”

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