What Is It?
Personal liability insurance protects your assets if you are found legally responsible for injuring someone or damaging property. Several types of liability protection are available. You can purchase basic liability protection as part of a property-casualty insurance package that also covers you against other perils, including damage to your own property. You can also purchase extended coverage in the form of a comprehensive or umbrella liability insurance policy.
Tip: Personal liability policies exclude claims related to business activities, but if you own a business, you can purchase liability insurance specifically designed to protect business owners.
Types of Basic Personal Liability Policies Available
An automobile insurance policy is made up of several parts, one of which is personal liability coverage. Most states require that you carry a minimum amount of liability coverage that is made up of two portions: bodily injury liability and property damage liability. While bodily injury liability pays claims resulting from injuries to passengers in your car, or in a car you collide with (if you are found legally responsible for the accident), property damage liability pays for things you damage with your automobile, such as another vehicle. Your automobile liability coverage will pay up to your policy limits for actual damages, and will also pay court ordered judgments for other losses (such as pain and suffering), and for your legal defense if you are sued.
Your automobile liability coverage is usually expressed as a split limit. If your liability coverage on your policy's declaration page is $100,000/300,000/50,000, this means that your insurer will pay a maximum of $100,000 to each person hurt in an accident, up to a limit of $300,000 per accident, and will pay up to $50,000 in property damage. No deductible applies.
Liability coverage under your homeowners policy is separated into two types. The first, personal liability coverage, pays an injured party for losses resulting from your actions. The second, medical payments coverage, pays an injured party's medical expenses incurred within three years of the accident that caused the injury. In addition, liability coverage under your homeowners policy will also cover you if you damage someone's property, and it will pay for the cost of legally defending you against claims. Many people carry a liability limit of $100,000 on their homeowners policies.
However, many policies are issued for more than this ($300,000 limits are becoming increasingly common). The liability portion of your homeowners insurance covers you both at home and away from home, covers members of your family who live with you, and protects you against many types of accidents and occurrences.
For instance, you may be sued when a tree falls on your neighbor's house and destroys the roof or if someone falls on your pool deck and breaks an ankle. You may be visiting a friend in a different city when your 10-year-old son throws a baseball and breaks your friend's nose; these accidents all may be covered under a homeowners liability policy.
Tip: Homeowners insurance does not cover motor vehicles that are registered and licensed by the state department of motor vehicles. However, some other vehicles (including trailers, golf carts, and some types of boats) are covered.
Tip: If you need more liability insurance than a homeowners policy can provide, consider purchasing a personal umbrella liability policy that will significantly expand coverage and offer a liability limit beyond that provided by your homeowners policy.
Condominium Owner's Insurance
When you purchase a condominium, make sure you protect yourself adequately against liability by purchasing a condominium owner's policy (the HO-6 form of homeowners insurance). Some states require that condominium associations purchase comprehensive liability coverage for their members (see below), but if your state does not, make sure that you buy adequate insurance on your own, because condominium owners are sometimes involved in disputes related to insurance claims. Whose policy covers what is sometimes unclear.
While your condominium association will carry insurance protecting the building and its common areas, you need to protect your own unit and your assets against liability claims and property damage. The condominium owners policy also offer some protection if the condominium association and its individual members are sued by paying up to $1,000 if you are assessed special fees as a result of the lawsuit.
Mobile Homeowners Insurance
Mobile homes may be truly mobile (on wheels) or set on a foundation. This means that sometimes they are insured more like vehicles and sometimes more like homes. Some stationary mobile homes may be covered by homeowners forms HO-2 or HO-3 if a mobile home endorsement is added to the policy. Others may be insured by separate mobile home policies. No matter what the form, however, mobile home insurance should contain liability coverage that will protect you if you injure someone or damage someone's property.
Many tenants don't bother to purchase renter's insurance (the HO-4 form of homeowners insurance) because they think that their belongings aren't numerous enough or valuable enough to insure. However, tenants often overlook another important reason to purchase renter's insurance: the personal liability coverage it offers. You need liability coverage when you rent for two reasons.
First, like a homeowner, you're at risk if someone is injured in your rented residence or if you cause a fire or accident in your building and others are injured or their property is damaged. If you are sued either by other tenants, by a third party or by your landlord, and you are found legally responsible, you will have to pay for any damages or costs out of pocket unless you own renter's insurance. If you do purchase a renter's policy, you will be covered up to a certain liability limit, and no deductible applies to the liability portion of your policy.
If you own some type of watercraft, how you protect yourself against liability depends on the type of watercraft you own. For instance, if you own a motorboat, a jet ski, or a boat under a certain length, it is likely covered under your homeowners policy (if you have one). However, if you own a larger boat or a yacht, you may need to purchase a watercraft package policy or personal yacht (Ocean Marine) insurance that will offer you protection and indemnity, which is a form of liability insurance.
Types of Extended Liability Policies
Personal Umbrella Liability Policy
A personal umbrella liability policy can protect you against liability more completely than basic liability coverage can. It protects you against losses that basic liability coverage often excludes, and it also covers losses up to a higher limit. Unlike other types of liability coverage, a personal umbrella liability policy can be purchased as a stand-alone policy. However, your insurer will require that you have underlying basic liability coverage (usually an automobile or homeowners policy, or both) before you can purchase an umbrella liability policy.
When you are found legally responsible for an injury or for property damage, your basic liability policy will pay first. However, if damages exceed the liability limits of your basic coverage, your umbrella policy will then pay the remainder, up to the limits of that policy. Or, in cases where your underlying policy does not cover the loss (e.g., you are found liable for personal injury), your umbrella policy may pay the total damages due.
Comprehensive Liability Policy
A comprehensive liability policy protects those without underlying basic liability coverage, usually because they don't own a home or a car. If you purchase such a policy, your policy will pay damages resulting from covered liability claims against you, including legal costs and medical costs.
Example(s): Hal owned a dwelling policy on a four-unit apartment building he was renovating, but he wasn't covered for liability under the terms of the policy. So he purchased a comprehensive liability policy that would protect his assets in the event he was sued.
Tip: Although the terms "comprehensive liability policy" and "umbrella liability policy" are used interchangeably at times, they are different largely because a comprehensive liability policy does not require underlying coverage, while an umbrella policy does (see below). In addition, the coverage under a comprehensive liability policy may not be as broad as coverage under an umbrella liability policy.
Excess Liability Policy
An excess liability policy can be purchased to supplement coverage provided by basic liability insurance. Coverage under an excess liability policy will be identical to coverage under the basic liability coverage, but will have a much higher liability limit.
Tip: A personal umbrella liability policy is sometimes known as an excess liability policy, but is different in that it doesn't duplicate coverage provided by the underlying policy. Rather, it provides both excess coverage (a higher limit of liability coverage) and broader coverage (it covers things that the underlying policy does not cover).
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