Explaining Personal Liability Coverage for Home Insurance

A little-considered portion of home insurance coverage is personal liability insurance. As individuals, we proceed about our lives, unconcerned about our actions; unaware of the way others may perceive our actions.

Personal liability as offered by our home insurance policy can help protect you from the costs of lawsuits that occur from daily activities.

An example of this might be if you play baseball in a pick-up league. As pitcher, you arrow a strike across the plate, hitting the batter in the face, breaking the batter’s cheekbone. If the batter has no other insurance coverage, he or she might sue you, as pitcher, for reimbursement for the medical bills involved.

This situation may seem far-fetched, but is possible.

Far more common are dog bites.

Dogs are naturally protective of the area in which they live and some of them can feel so threatened that they bite the intruder. They bite neighbors and children as well.

In a situation such as this, your home insurance liability can pay for the injury through the medical payments offered under the policy or, if you are sued, pay for the costs. Dog bites are responsible for more than a third of home insurance liability claims. The Insurance Information Institute indicates that, in 2008, approximately $412 million was paid for dog bite claims.

Furthermore, depending upon the state in which you live, you could be considered liable by a guest to whom you serve alcohol. Owning a pool, trampoline, or a hot tub can boost the possibility of liability claims.

Without insurance, individuals must pay court costs, attorney’s fees, and – if necessary, settlements by himself or herself. The home insurance policy offers a certain amount of financial protection.

Personal liability coverage is limited to your legal activities and does not provide liability for operating automobiles or recreational vehicles such as snowmobiles, four-wheelers, boats, and mopeds.

Separate policies are available for these particular recreational vehicles.

How much personal liability insurance is needed?

Consider the amount of personal liability coverage you should carry by examining your income, the value of your investments, and other property you own. The usual home insurance limit is $100,000, but it can be increased to $300,000.

If your net worth is over $300,000, consider purchasing an Umbrella Liability policy of at least $1,000,000. Umbrella policies provide insurance over and above the liability coverage offered by home insurance policies as well as automobile insurance policies.

An Umbrella Liability policy is relatively inexpensive to purchase.

Purchasing Home Insurance

Home insurance policies offer a great deal of coverage beyond just buildings. Before purchasing home insurance or requesting quotations on home insurance, you should consider the following:

• Reputation and financial status of the insurance companies involved
• Amount of insurance to be carried on property
• Perils covered
• Type of insurance – replacement cost or actual cash value
• Deductibles
• Amount of personal liability coverage to purchase
• Amount of medical payments coverage

Reputation and Financial Stability of Insurance Companies

Just as important as the cost of a home policy is the reputation and financial stability of the insurance company from which you purchase the insurance.

Nothing is more disturbing than to discover, at the point when you have a loss, that your insurance company is in receivership and unable to pay a claim.

The higher the rating, the more likely the insurance company is solvent.

To avoid this situation, you may examine a number of websites:

• Your state’s insurance website – link to the National Association of Insurance Commissioners (NAIC) website and click on your state. Licensing and financial information is usually available there.
• The National Association of Insurance Commissioners (NAIC) to examine companies by name- this will give you the financial status of the company as well as the complaint to premiums written ratio for that company
• A.M. Best Rating Company
• Standard and Poor’s Rating Company

Amount of Insurance Coverage to be Carried on Property

The first impulse individuals have is to purchase the amount of coverage reflecting the cost paid for the property. We forget, though, that there is no need to purchase insurance upon the land itself.

Then, too, sometimes the cost paid for the property was a bargain or overpriced, depending upon the market.

An insurance inspection can help you determine the replacement cost of your property, and there are a number of calculators that can help determine what it would cost to rebuild your home.

A free one can be accessed at building-cost.net.

Perils Purchased Under a Home Insurance Policy

Under the special form of home insurance coverage, usually purchased on newer homes, the following perils, or reasons for loss are covered:

• Lightning, fire, smoke, explosion
• Windstorm, hail, civil unrest, and vehicular damage (but not your cars)
• Theft, vandalism
• Trees and other falling objects
• Weight of snow, sleet, and ice
• Freezing, rupturing, or sudden and accidental overflow of plumbing, heating, and air-conditioning systems
• Sudden and accidental overflow of household appliances

Be sure to note that the following perils are not covered:

• Flood Insurance – You can purchase this coverage through your local agent, but access FloodSmart to learn about flood coverage.
• Earthquake Insurance – This, too, can be purchased through your local agent, who can inform you of the coverage.

Be certain that you check about this insurance because in the past a number of individuals have assumed that he or she did not need flood or earthquake insurance only to discover that the coverage was necessary later.

Replacement Cost or Actual Cash Value

When purchasing a home insurance policy you have the option between replacement cost coverage or actual cash value. They differ in this way:

• Replacement cost is the cost to rebuild your home or repair damages to it using similar materials and construction. Replacement cost applies to contents as well.
• Actual cash value reflects the value of your property considering the age and wear and tear. It pays for the loss, but does not totally replace the damage.

Replacement cost is a much better choice to make certain your property coverage is adequate. Recognize that you are required to purchase at least 80% of the replacement cost to meet policy requirements.

Deductibles

Home insurance policies require deductibles and often a higher deductible can save you money on your premiums.

Consider, too, if you would realistically submit a claim under a certain amount. Set the deductible within your means, making sure you comply with the requirements of your mortgage.

Personal Liability

Set your personal liability limits to reflect your needs to protect your assets and needs, recognizing that the costs of court, attorneys, and possible awards are increasing.

Some states have a history of higher awards than others do.

Your insurance agent will know more clearly what your state’s record has been and can advise you, reflecting your net worth.

Medical Payments

Medical payments coverage is unique to the home insurance contract. Usually $500 is the limit given, but it can go up to $5,000. This coverage does not require a lawsuit to be activated. This particular coverage usually responds upon the submission of a claim by the home owner.

Accidents such as slip-and-falls, dog bites, and minor accidents in the home may be covered under this portion of the policy.

Value of Home Insurance

Home insurance is valuable to owners and renter alike in that the coverage helps you protect your assets not only from loss due to common perils, but also from lawsuit.

Unfortunately, renters often assume they do not need or cannot afford this type of coverage, when in actuality it is even more necessary if you do not own your own home.

Assess quotations and coverage carefully. Read your insurance policies carefully to make sure that you are aware of the coverage provided as well as the duties you have as policyholder. Weigh the advantages of several companies.

Plan to assess your insurance needs at least on a yearly basis. Examine your coverage to make certain that it is up to date and reasonable for your needs. Compare quotes using the FREE tool below!