What Is Personal Liability Homeowners Insurance?

Coverage E is one of the six major homeowners insurance coverage policies. This type of home insurance will provide you with coverage against any injuries or property damage that were not caused by a vehicle. Coverage E homeowners insurance covers personal liabilities at home and anywhere else in the world.

To find out more information on the other major types of homeowner insurance policies, please view the following articles:

Coverage A (Dwelling) Homeowners Insurance
Coverage B (Other Structures) Homeowners Insurance
Coverage C (Personal Property) Homeowners Insurance
Coverage D (Additional Expenses) Homeowners Insurance
Coverage F (Medical Payments) Homeowners Insurance

If you are interested in learning more about home insurance in general, please see the following videos:

Personal Liability Home Insurance

Although personal liability coverage for injuries and property damage make up a small part of your total homeowners costs, it is perhaps the most important homeowners insurance policy that you can have.

The reason for this is that it provides you with such comprehensive coverage against a wide range of injuries and property damage, that without having such insurance, you leave yourself exposed to a vast amount of unnecessary uninsured financial risk.

To give you an idea of just how useful it can be to have such a policy, have a look at some of the things it can protect you from as listed below.

• Coverage against lawsuits and defending against lawsuits in addition to other legal fees.

• Worldwide personal liability coverage.

• Damage caused to a neighbours property by your child.

• Injury to others caused by your pets, such as dogs.

• Injury to others caused by equipment that you are operating, such as a lawnmower or garden shredder.

• Injury to a child who you are babysitting.

• Injury to others caused by your child outside the home.

• Injury you cause to others whilst playing a sport.

Basically, any sort of damage or injury that you cause to someone else which results in them filing a claim or lawsuit against you will be covered under your personal liability insurance policy.

As you saw from the list above, without having such a policy to protect you there are a lot of things that could happen to you, especially if you have children, which if you are not insured for could end up costing you a lot of money.

The good news is that most homeowners insurance policies include $100,000 worth of coverage at no additional cost, which should be sufficient for most small or starting families.

But as we explain in the next section, even though you do receive this coverage for free, you should eventually think about extending it by upgrading your policy to insure yourself against greater financial losses.

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Extending Coverage To Insure Against Greater Risk

One of the biggest mistakes people make with personal liability insurance is not extending their coverage past the $100,000 they receive free with their standard home insurance policy.

Considering the fact that you can gain much greater personal liability coverage for minimal additional cost, it really makes sense to ensure that you are covered for a reasonable amount to protect out-of-pocket losses later on.

Another common mistake that is often made is not matching a personal liability limit to other policy limits, such as the limits for a car or boat. Since you never know which insurance policy you are going to need to claim on in the future, it is wise to ensure that you are covered equally in all areas of your life.

So upgrade your coverage limit when you can afford to do so, and try to get your insurance portfolio as balanced as possible to give you an adequate and wide range of protection.

Insuring Yourself At The Right Level

The amount of personal liability that you require to ensure full coverage against major financial losses in your life can vary depending on a number of factors.

However, in general, there are four main considerations that one should make when trying to determine how much personal liability insurance they require. Each of these are described below.

1) How Suable Are You?

The more money you earn and the more you own the more suable you are. If someone thinks that they can sue you for a lot, they will, and so you need to ensure that your personal liability coverage will be high enough to absorb these costs.

For example, people in high paying professions such as doctors, lawyers, bankers and business owners are especially vulnerable to being sued for large amounts of money in liability insurance claims, and so would benefit from taking out high coverage limits with their policy.

The same can apply if you have saved up a reasonable amount of money in the bank or live in a large home. In which case, setting high personal liability coverage limits is also in your best interest to do.

2) What Gives You Peace Of Mind?

Some people feel comfortable with low policy limits, whilst others need higher limits to have peace of mind.

The limit you set on your insurance policy therefore really depends on how at risk you feel, and what you need to protect yourself against. As a result, the previous consideration, how suable you are, will largely determine what level of risk you feel comfortable with and what level of risk makes you feel uncomfortable.

This perceived risk however, must be balanced by your current level of income as you need to be able to afford to maintain any insurance policy that you take out.

Most insurance advisers will recommend that you start out with a lower coverage limit, and then gradually increase that coverage as you earn more money over the course of your working life.

This is a much more sustainable approach to insurance, and will allow you to maintain your policy without having to make major sacrifices to your standard of living.

3) Your Moral Code

Some people take out high coverage limits to ensure that anyone they injure, or anything they damage, can be compensated for in full.

In an ideal world everyone would do this, but considering the fact that doing so will cost you more money to maintain your policy, it is understandable why not everyone does.

4) Do You Have Children?

If you have children then you may want to take out higher personal liability insurance limits because you are exposed to greater risk in terms of injury and property damage.

You may however, want to reduce your coverage limits once your children grow older or move out of the home, as this generally represents a time of lower liability risks and therefore higher coverage limits will probably not be needed.

This final consideration also shows the importance of reviewing your insurance policies on a regular basis, ideally with your agent or broker.

Very often you will find that as life changes, so do the risks that you are exposed to. By reviewing the coverages you have on a periodic basis, you may therefore discover that you no longer need protection against certain risks, and so can drop your insurance coverage and save money by doing so.

Likewise, you may also discover new risks that you feel vulnerable to, and so you can take out an additional insurance policy, or extend an existing one, to reduce your risk of suffering from significant uninsured losses.

Cost Of Higher Liability Limits

Depending on the amount of risk you feel that you are exposed to, you will probably want to increase your home personal liability limits.

It is a good idea to increase your limits above the base $100,000 anyway, as you can do so for minimal expense in return for tremendous benefits.

For example, an extra $200,000 worth of coverage will cost you about $15 extra a year. Whilst an extra $400,000 worth of coverage will cost you about $25 extra a year.

As you can see, for the amount of extra liability protection that you are getting, it really makes sense to incur that additional expense so that you can protect yourself against potential large financial losses in the future.

In terms of a base figure for how much personal liability insurance you should buy, it is generally recommended to have at least $500,000 worth of coverage at a minimum with $1 million worth of coverage being ideal.

As with all types of insurance, the more you have the better protection you will receive. But just make sure to take out a policy that you can afford, and that covers you against the risks which you are most vulnerable to.

You do not need to be protected against all risks, as there will only be a few large risks that you are likely to struggle to recover from by yourself. For the smaller risks which you could easily recover from, it is therefore usually better to save your money and not insure against small financial losses unless it is cost-effective to do so.