What does home liability insurance cover?

When you host friends and family for a gathering, you don’t expect anyone to sustain a life-changing injury. But unfortunately, accidents happen. Your home insurance’s liability coverage can help cover the costs associated with injuries and property damage when these incidents occur.

What is liability insurance?

Liability insurance is part of your home insurance policy and protects you against lawsuits for injury or damage to the property of others. This coverage also extends to other members of your household, including pets.

For example, let’s say you’re having a pool party and your neighbor slips on the deck. Your neighbor may choose to sue you for medical bills related to the pool injury. At that time, your liability insurance will come into effect and will pay both your legal and medical expenses. This saves you from facing the financial ruin of paying the expenses out of pocket.

Now, let’s say your neighbor chooses not to sue you, but needs your help paying for his medical bills. In this case, your insurance company can always cover these costs as a sign of goodwill.

What does liability insurance cover?

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

Here is what liability insurance covers:

Medical payments for guests

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

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

Damage to property of others

If you cause an accident that unintentionally damages someone else’s property, your liability insurance can help pay for that damage.

Imagine that your children are playing soccer in the garden. Halfway through the game, one of the children throws the ball through the neighbor’s window and breaks 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 insurance will help pay the legal costs, whether or not you are responsible for the accident.

For example, say your postman is trying to deliver a package when he slips and falls on your porch. During the fall, he suffered life-threatening injuries and decides to sue you for payment. Instead of paying a lawyer out of pocket, which could cost you thousands of dollars, your insurance company will step in and cover those costs.

But, there is a limit to what liability coverage will pay if you are sued.

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

Liability coverage limits

The amount your liability coverage will pay 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.

Suppose a lawsuit finds you responsible for an injury a guest suffered at your home and the judge orders you to pay $500,000 in medical expenses. If this settlement could potentially completely consume your net worth, then consider opting for the maximum amount of coverage offered.

On the other hand, certain items like swimming pools can increase the risk of a customer being involved in an accident and filing a liability claim against you. In addition, recreational vehicles such as snowmobiles, four-wheelers and jet skis may pose a higher risk of loss. For this reason, the Insurance Information Institute recommends increasing the minimum coverage limit to at least $300,000 if you own any of these items.

“Going from $100,000 to $500,000 can cost you between $10 and $20 a year, so it’s inexpensive to go upscale,” says Olsen. “It’s important that you have enough cover when something like this happens.”

If you’ve maxed out your liability coverage but think you need some extra 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 insurance for your car or a recreational vehicle such as 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 injury and property damage to those affected by the incident.

For example, let’s say you and your friend are snowmobiling. Your friend accidentally hits a mailbox and breaks his arm. Your liability insurance on your snowmobile would pay for both the damage to the mailbox and the medical expenses incurred in the accident.

It is important to note that this coverage is separate from your home insurance. You must purchase additional coverage to insure these items.

What is not covered by liability insurance?

Generally, liability insurance helps you pay for expenses related to an accident in which another person is injured or their property is damaged. Your liability insurance would not cover your personal medical expenses or those of any member of your household. It also does not cover damage to your own property, even if the damage is caused by another person.

There are a few other cases where your liability insurance would not apply, including:

  • Punitive damages in a lawsuit
  • Intentional damage, such as intentionally injuring a guest
  • Criminal acts, such as arson that burns down your neighbor’s property
  • Damage caused by normal wear and tear, including damage caused by animals and insects
  • Injury or damage related to a business that runs out of your home

The take-out sale

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

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