What Does Personal Liability Insurance Cover?

How Personal Liability Protects You

Woman kneeling beside a fallen man with a knee injury
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You can be held financially responsible for medical bills, legal fees, and more if someone is injured on your property, or if you damage someone else's property. Personal liability insurance can protect you against this risk. It covers the costs if you're sued.

Key Takeaways

  • Personal liability insurance protects your current and future assets from lawsuits if you're sued for property damage or for injury to another person.
  • Basic liability insurance is often quite affordable. It's included in your home or renters insurance.
  • Accidents that occur while you're operating a car or boat are rarely covered under these policies, and a home business may not be covered, either.

Ways Liability Insurance Protects You 

Being involved in a lawsuit could cost you everything. Personal liability insurance protects you in a few ways.

This type of insurance protects your current and future assets. It's available through your home insurance or renters insurance policy. It may provide coverage for your legal defense in the event that a lawsuit is brought against you. It helps you avoid having to pay legal defense fees out of your own pocket.

Liability insurance can provide coverage for lawsuits that you may face as a result of an accident, including bodily injury to others on your property, even if the event was caused by you.

This type of insurance also provides coverage for you and members of your family or household (as defined in your contract) for their actions on and off premises. This includes accidents and even events that may occur due to your negligence. 

Who Needs Liability Insurance?

You should think about buying this type of insurance as soon as you're living on your own and become responsible for your own actions. The cost is often included in renter, homeowner, and condo policies. It often works out to just a few extra dollars a month.

You might think that you have nothing to lose now, but your future assets could be at risk if you're found to be liable for personal injury or property damage. Future earnings like wages can be garnished. Future assets can be affected if no existing assets exist. You could lose assets such as your home.

What Else Is Covered by Liability Insurance?

Your insurer might make voluntary payments when you cause damage to another person's property. This can often prevent a lawsuit. The person doesn't have to sue you to collect damages. This may be the case if your tree falls on the neighbor's fence during a storm, or if your child throws a ball at a neighbor's window and break it.

Your insurer might offer no-fault medical payments to others as well. This, too, can be an easy way to settle an injury claim without a lawsuit.

This type of policy often covers damage caused by those who work for you in your home, if they're acting on your behalf as part of their duties. It can cover damage caused to others by members of your household, like your kids. It covers injury caused by your pets, such as dog bites.

How Much Will This Cost?

The cost of this type of policy is often very affordable. Home insurance rates are based on the insured value of the building, or the insured value of contents. Liability coverage is part of the package. 

An insurer will offer you a base liability policy, often starting at $100,000 in the U.S. This goes up to $500,000 in Canada. You can buy extra coverage beyond this if you see the need. You should always think about taking the greatest amount of coverage available to you given the low cost of this type of insurance.

Review your needs with your insurance agent. They should be able to advise you. They can suggest the most appropriate limit.

Your agent can explain the terms of umbrella liability insurance if you need more coverage. This can protect you even further.

It Can Protect You Around the World

Liability insurance can also cover you off premises. It can cover you when you're traveling worldwide.

You might be away on vacation. You've rented a private spot on the beach, and you decide to light the area with torches for a perfect setting to watch the sunset. The wind changes direction as you're walking along the beach before dinner. Your torches set the area on fire.

The hotel can hold you responsible because you placed the torches on premises. You're not only liable for damages to the hotel, but also for lost income from other guests who can't use the area while they repair and rebuild. Your liability coverage could help you here.

Liability also protects you if you or members of your family play sports and unintentionally cause injury to other players. You might hit a golf ball poorly, and it makes contact with another golfer's head.

Liability insurance is essential for pool owners. Drowning is the leading cause of death in children ages one to four. It's the second leading cause of death for children five to fourteen.

This insurance is all about protecting you from many problems that may happen accidentally, but still leave you on the hook for damages.

What Is Not Covered?

Liability for damages and injuries caused by you when you're driving an auto is not covered under personal liability insurance. This must be covered by a car insurance policy.

Liability arising from operating watercraft that you don't own may be covered. But you could be denied coverage based on the motor, the length of the boat, or the conditions under which you're operating it.

Liability arising out of a home business can be tricky. It can be excluded in many cases. Talk with your agent to make sure you have the right protection in place if you work from home. It can impact your liability and your personal property as well. Coverage can often be added with an inexpensive endorsement.

Claims can be excluded if you're held liable for something that occurs while you're working or as part of your job.

Your activity as part of an association, a board of directors, or a non-profit may be covered in "above standard" policies. But it's often excluded by most standard policies.

Never assume that you're covered. This could create an exclusion. It could cause you to be denied coverage in many cases if you assume liability because you think you're covered, but you're not. Always contact your agent to have them review the case and explain how your coverage applies.

Let the Insurer Know If You Think You're Being Sued

You enter into an agreement as part of your insurance contract that you will make your insurer aware of any lawsuits against you as soon as you become aware of them. You must cooperate with the company.

Policy wording can vary from state to state. Call your agent or broker to be sure you know how this provision applies to you. You can also call your state insurance commissioner's office for advice.

Insurance policies are legal contracts. You agree to certain conditions when your insurer agrees to pay you for a claim. Failure to cooperate or to make them aware of potential lawsuits could cause big problems for you.

Your insurer is there to help you in a liability claim. Provide all the information you can so they can defend you and settle the issue.

The Bottom Line

Having an insurer stand behind you in a legal situation is a strong asset. It's in their best interest to work on your case and provide you with the best support. You can rest easy knowing that someone has your back if something goes wrong.