What Does Personal Liability Insurance Cover? Do You Need Coverage?

How Personal Liability Protects You

Couple enjoying romantic vacation on the beach - personal liability coverage for accidents
••• Colin Anderson / Getty Images

No matter what stage of life you're in, you probably have exciting plans for the future. However, those dreams could be foiled by an unexpected—and expensive—lawsuit. Whether someone is accidentally injured on your property, or you unintentionally damage a stranger's belongings, you could be held financially responsible for someone's medical bills, legal fees, and more.

Personal liability insurance can help mitigate these risks and cover costs if you are sued. Here's what you need to know about how these policies work, what they cost, and when you might need one.

Key Takeaways

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

The 3 Ways Personal Liability Protects You 

Everybody knows that lawsuits and lawyers cost a lot of money, and being involved in a lawsuit could cost you everything. Personal liability insurance protects you in 3 ways:

  1. Personal liability protects your current and future assets. Available through your home insurance, condo insurance, or renters insurance policy, it may provide coverage for your defense in the event that an action is brought against you whether you are responsible or not. It helps you avoid paying legal defense fees out of your own pocket.
  2. Personal liability may provide coverage for lawsuits you may face as a result of an accident happening, including bodily injury to others on your property, or caused by you.
  3. Personal liability also provides coverage for you and the members of your family or household (as defined in your insurance contract) for their actions on and off premises, worldwide. This includes accidents and even things that may happen due to your negligence. 

Who Needs Personal Liability Insurance?

As soon as you are living on your own and responsible for your own actions, you should consider personal liability insurance. The cost for basic personal liability insurance is included in renter, homeowner, and condo policies, and works out to only a few dollars a month.

Even if you think you have nothing to lose now, your future assets are also at risk if you are held liable for a personal injury or property damage. You can not only lose existing assets like investments, homes, and other property, you should also consider that future earnings like wages can be garnished or future assets can be impacted when no existing assets exist! 

In addition, how about if you're wrongly accused of something, and are forced to go to court even though the accusation is false? Liability coverage would pay the cost of defense and provide legal representation.

What's Covered by Personal Liability on Home Insurance

Here is a list of things that are usually included under the liability coverage in a homeowner, condo insurance or renter policy:

  • Personal Injury
  • Defense Costs - The insurance company will assign a lawyer to defend you and pay these costs.
  • No-Fault Medical Payments to Others - an easy way to settle an injury claim without a lawsuit.
  • Situations where you are being held responsible for property damage to others.
  • Voluntary Property Damage Payments are when you cause damage to another person's property and may avoid a lawsuit by using this part of the coverage. An excellent example is if your tree falls on the neighbors' fence during a storm causing damage, or if your kids throw their ball at a neighbors window and break it.
  • Damages caused by your residence employees if acting on your behalf as part of their duties
  • Damages caused to others by members of your household, like your kids.
  • Damages caused to others by your pets, like dog bites or destruction of property
  • Liability arising out of the operation of golf carts (subject to policy definition. limits and wording)

Is Liability for Driving a Car Covered by Personal Liability?

Liability for driving a car or damages and injuries caused by you when operating a vehicle is not covered under personal liability. Liability for driving a car must be covered by a car insurance policy. It is excluded in the basic personal liability on your home insurance policy.

Do You Really Need Liability Insurance? Here Are Some Facts

The potential for lawsuits in our daily lives has increased dramatically in the past several years. Consider that according to an analysis by the National Safety Council (NSC) in 2017, there were 37,600,000 people who suffered medically consulted injuries at home.

Injuries of others in your home could be covered as part of the liability insurance for medical payments to others.

Also consider, based on actual insurance payouts, according to the Insurance Information Institute, about one in 20 insured homes have a claim each year, and approximately one in 900 homeowners policies have a liability claim.

The Risks for Claims Arising from Liability Are Real, Regardless of Your Assets

Liability coverage is probably the most understated coverage when it comes to the insurance purchase. Since personal liability coverage comes with most primary residential insurance policies as part of the “package” people, tend to focus more on the value of their building, condo, or contents, and take the liability portion for granted. 

What Is the Best Way to Get Personal Liability Insurance? 

It can be included as part of your residential insurance policy:

For the purpose of this discussion, we will refer to the above policy types as your home insurance.

How Much Will Personal Liability Insurance Cost?

The cost is minimal since residential insurance policies base their rate on the insured value of the building or the insured value of contents. Liability coverage is part of the package. 

How Much Personal Liability Insurance Should I Get?

Each insurance company will provide different base liability policy limits in the package usually starting at $100,000 in the United States and usually a minimum of $500,000 in Canada.

Increasing Your Personal Liability on Your Insurance Policy

Considering the low cost of liability coverage, you should always consider taking the maximum amount available to you. You can review your particular needs with your insurance agent or representative who will be in the best position to advise you how much is available to you and suggest the most appropriate limit. If you need more than what is available, they will also be able to discuss umbrella liability insurance, which can protect you even further.

How Liability Coverage Can Protect You Around the World

Liability insurance not only protects you at home, but also covers you off premises and when you are traveling worldwide in many situations. Here are a few examples.

Example of Personal Liability Insurance: Beach Adventure Gone Wrong

Imagine you find yourself on a romantic vacation, you've rented out a private spot on the beach and you've decided to light the area with incredible torches for a perfect setting to watch the sunset. As you're walking along the beach before dinner, the wind takes another direction and your torches light the area on fire. The hotel holds you personally responsible since you placed the torches on premises, and suddenly you are not only liable for the damages to the hotel, but also to the lost income from other potential guests using the area while they rebuild. Your personal liability could help you.

Play Sports? Personal Liability Can Protect You and Your Family Members 

Liability also protects you if you or members of your family do sports, and may cause injury to others unintentionally.

Imagine hitting a baseball out of a park onto the street, what if it hits a child, or breaks a window from a house?

Another example: imagine if you are golfing and you hit the ball but it takes a turn in the wrong direction and hits another golfer on the head. This could result in a severe injury that you would be responsible for.

Liability coverage on your residential policy covers a vast range of circumstances. At the end of the day, it is all about protecting you from a multitude of situations that may happen accidentally but leave you on the line for damages.

Buying a Pool?

Liability Insurance Is Essential for Pool Owners. Did you know that drowning is the leading cause of death in children ages 1 to 4, and it's the second leading cause of death for children 5-14.

What Is Not Covered by Liability Coverage on a Homeowner Policy?

The liability coverage provided on your standard policy is complicated. When in doubt, always ask.

For example, in some cases, liability arising from operating watercraft that you do not own may be covered, but in other cases based on the motor, length of boat or conditions under which you find yourself operating the watercraft, you may not be covered at all.

Other things are clearly excluded from your liability coverage, such as the liability for motor vehicles that require registration and licensing to operate on roads. This is why cars require automobile liability insurance and are not insured under home policies.

Personal Liability Exclusions and Home Business Activity

Liability arising out of home businesses can also be tricky and in many circumstances can be excluded. If you operate a home business you need to advise your insurance representative to make sure you have the right protection in place. It can not only impact your liability but your personal property as well. Often coverage can be added by an inexpensive endorsement.

If you are held liable for something while you are working or as part of your job, this would be excluded.

Your activity as part of an association, board of directors, or non-profit may be covered in "above standard" policies, but are excluded by most standard policies. Definitely inquire if these are things that pertain to you.

Never assume you are covered automatically. In many circumstances, if you assume liability for something, you could then create an exclusion and not be covered. Always contact your insurance representative to have them review the circumstances and explain how your coverage applies.They are in the best position to discuss the exclusions on your policy. 

Do I Have to Let the Insurance Company Know If I Think I'm Being Sued?

By having an insurance company protect your liability in the event of a lawsuit, you enter into an agreement as part of your insurance contract or policy that you will make the insurance company aware of any potential suits against you as soon as you become aware. You must cooperate with the insurance company. Policy wording varies from jurisdiction to jurisdiction. However, you should call your agent, broker or insurance representative to inquire about this obligation to make sure you understand how it applies to you. If you prefer, you can also call your state insurance commissioner's office for general advice.

Important Facts to Understand About Liability Provided by Your Insurance Company

Never forget that insurance policies are legal contracts, and there are obligations in any contract. In the same way, they agree to pay you for a claim, you have certain conditions you have agreed to. If you do not know what they are, it is important to find out.

What If I Don’t Cooperate With My Insurance Company?

Failure to cooperate with your insurance company, or make them aware of potential lawsuits could cause significant problems for you. In some cases, based on the conditions of your insurance agreement or policy, could make you ineligible for their help. Remember that the insurance company is ultimately there to help you in a liability claim. Provide all the information you can so that they can defend you and settle the issue.

Liability Coverage Is the Best Way to Protect Your Money, Your Assets, Your Family and Your Future

Having an insurance company stand behind you in a legal situation providing legal services and advice is a pretty strong asset. It is in their best interest to work on your case and provide you with the best possible support. When you have liability insurance, you can rest easy knowing that if something goes wrong, someone has your back.