Skip to main content

Personal Liability Insurance Explained: Do You Need It?

5 minute read

David Ning

By David Ning

We’ve probably all heard this story, one way or another. It remains one of the funniest things I’ve ever read about. It’s the story of the burglar who broke into a home and then tried to sue the home’s owner after hurting himself. I can’t quite remember all the details. Heck, at this point I’m not sure if it really happened or is just an urban legend. However, here’s the gist of what happened.

A would-be thief broke in into a home to steal something. Before they could execute their crime, they slipped in the kitchen on a wet floor. Incredulously, the burglar then attempted to sue the homeowner for his injury. Luckily, the owner had personal liability coverage on his homeowner’s insurance. That means his insurance company dealt with the whole ordeal. But can you imagine this happening to you? Are you supposed to laugh or get mad?

What is Personal Liability Insurance?

Basically, personal liability insurance covers accidents that cause bodily injury or property damage you might be deemed liable for. Fortunately, most claims are not as ridiculous as the above burglar story. For example, someone could slip and be injured in your driveway because you neglected to clear out the ice. They then sue you for medical bills, lost wages, and that catch-all term “pain and suffering.” If you have personal liability coverage with your home insurance, your insurance company will step in. They will help you with legal fees and/or pay for medical bills if you are deemed liable in court.

Personal liability coverage also covers less obvious accidents. Your liabilities are covered if your dog bites a stranger and they sue. In fact, dog bites are one of the most common claims for personal liability insurance.

Some people consider the biggest benefit of personal liability insurance is the generally high coverage limits. However, you shouldn’t overlook the fact that it will also see your insurance company (and their army of lawyers) go to bat for you. After all, they don’t want to be on the hook for a frivolous payout either. That will save you the stress of finding (and paying for) your own lawyer. You also won’t have to deal with many of the details, other than providing a statement or answering a few questions. The lawyers will handle most of the legwork, behind the scenes of your everyday life.

It’s Usually Part of Another Insurance Policy

Personal liability insurance can be purchased on its own. However, it’s commonly included as part of homeowners or renters insurance. Auto insurance also has a personal liability coverage component, which can be confusing. That’s why you might see people use “personal liability insurance” and “personal liability coverage” interchangeably. That’s also part of the reason why a standalone personal liability insurance policy is rare. Most people tend to get an umbrella insurance policy to cover any additional coverage above and beyond what their home or auto insurance covers. Still, it’s best to speak to an insurance agent if you have any reason to think that you’ll need a standalone policy.

Not being totally clear about the differences isn’t a big deal though. Just remember that personal liability insurance covers bodily injury and property damage you are legally responsible for. Here’s what that can mean in a more specific way.

Bodily injury refers to anything that has to the do with the injured party. That can mean medical costs, but also potential lost wages. The person who slipped on your driveway may have hurt their back and is now unable to perform their construction job for a couple weeks. The amount of lost wages could add up. Emotional stress is also covered, if the injured party claimed they suffered emotionally as the result of the accident.

Property damage is more straightforward. If an accident causes damage to property, your personal liability insurance can help repair or replace it. For example, if your tree falls over and crashed through your neighbor’s window, you won’t be held personally liable. That’s what insurance is for. And hopefully you have a good enough relationship with your neighbor that you can get this resolved without a lawsuit.

Personal Liability Coverage Limits

Most homeowners insurance include a minimum of $100,000 in personal liability coverage. The average policy falls in the $100,000 to $300,000 range. Raising the limit is often relatively inexpensive — a price that reflects the fact that most claims are of a lower amount. Still, a higher limit could be useful for those with significant assets they want to protect.

Let’s say your dog bites a stranger. The bite caused some complications and they needed to be hospitalized for some reason. If he decides to sue, the damages could potentially run into the hundreds of thousands of dollars. In this theoretical example, let’s assume you’ve amassed some wealth and are worth $800,000. If you don’t have personal liability coverage and the suit is seeking $400,000 in damages, half your net worth could be wiped out. Plus you might still be on the hook for additional legal costs.

On the other hand, a personal liability insurance policy would cover your legal costs. In addition, that $300,000 coverage limit means that your maximum liability in this accident is $100,000, since the insurance company will pay up to the coverage limit. Plus the insurance company has an incentive to pay less than $300,000, so their lawyers will do their best to fight the suit entirely. If they can get it knocked down below $300,000 (or dismissed entirely), you won’t owe a cent. That’s a huge difference, and shows the benefit of personal liability insurance. Same freak accident, two vastly different outcomes.

The Bottom Line

Personal liability insurance is just like any other insurance. You pay a small premium in order for financial protection in the unlikely event of an accident or disaster. You probably won’t think about it until the moment comes when you really need it. And if you don’t have it when the time comes, you’ll wish you did.

Look into your home, auto, or renter’s insurance policies. Make sure you know whether they have any personal liability coverage — and for how much. If it’s missing (or on the low end), consider adding additional coverage to your plans. With so many things that can go wrong in the world, we strongly suggest you give this coverage some extra thought. Make sure the amount you are insured for makes sense for you.

Personal Liability Insurance paperwork

Shutterstock

David Ning

Experienced Finance Writer

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs MoneyNing.com, where he discusses every day money issues to encourage the masses to think about their finances more often.

Explore

Filing For Unemployment Insurance: Everything You Need To Know Insurance

Filing For Unemployment Insurance: Everything You Need To Know

Losing a job is never easy. This is especially true if it caught you by surprise or you received little (or no) severance pay from your former employer. Thankfully, unemployment insurance is designed to help alleviate your immediate financial concerns while you look for another job. The pandemic has caused a massive amount of economic […]

Read More about Filing For Unemployment Insurance: Everything You Need To Know

5 minute read

Adding a Teen Driver to Your Insurance (Without Breaking the Bank) Teen driver with car insurance Auto Insurance

Adding a Teen Driver to Your Insurance (Without Breaking the Bank)

Teenagers learning to drive is a rite of passage. It’s one that parents dread, but their teens can’t wait for. I remember how I couldn’t even fall asleep the night before when my parents told me I could get behind the wheel the next day. It was just that exciting for me! I’m sure I […]

Read More about Adding a Teen Driver to Your Insurance (Without Breaking the Bank)

6 minute read

Auto Insurance: How to Get What Your Car Is Worth When It’s Been Totaled Car accident between two vehicles Auto Insurance

Auto Insurance: How to Get What Your Car Is Worth When It’s Been Totaled

I still remember the accident like it was yesterday. We were packing up to go home after graduation. I was following my friend in his own car. Then out of nowhere, he swirled to the left and back onto his lane. Instead of focusing on what he was trying to avoid, my eyes were fixated […]

Read More about Auto Insurance: How to Get What Your Car Is Worth When It’s Been Totaled

6 minute read

Does it Make Sense to Get Life Insurance For Your Children? Two Parents Playing Outside with Child Life Insurance

Does it Make Sense to Get Life Insurance For Your Children?

Generally speaking, it doesn’t usually make sense to purchase life insurance for your children. While losing a child is devastating for any parent, no family is likely to be reliant on a minor’s income for survival. However, there are some special circumstances where buying life insurance on your child makes sense. At the very least, […]

Read More about Does it Make Sense to Get Life Insurance For Your Children?

5 minute read

Should You Still Buy Life Insurance If You’re Single? Man Sitting in Room of Moving Boxes Insurance

Should You Still Buy Life Insurance If You’re Single?

I’ll be honest with you. I’m still relatively young and I’ve never thought about getting life insurance until recently, despite being the sole breadwinner in the family. Frankly, finances could be tough for my wife and our two young kids if something were to happen to me. Despite those facts, having a policy would still […]

Read More about Should You Still Buy Life Insurance If You’re Single?

5 minute read

Easy Ways to Lower Your Car Insurance Premiums Red Toy Car on Folded Cash Auto Insurance

Easy Ways to Lower Your Car Insurance Premiums

Money-saving tactics are the subject of hundreds of Google searches these days. So it’s no surprise you might be looking at your car insurance premiums and wondering, “How can I save money here too?” After all, with so many companies advertising give-backs, there might be more than just extra dimes and nickels hiding in your […]

Read More about Easy Ways to Lower Your Car Insurance Premiums

6 minute read

See all in Insurance