The personal liability portion of your homeowners insurance policy covers you against lawsuits for injury or property damage that you or your family members cause to other people. It also pays for damage caused by your pets. The liability coverage in your standard homeowners policy pays both for the cost of defending you and for any damages a court rules you must pay. Unlike the other types of coverage in your policy, liability insurance doesn't have a deductible that you must pay for out-of-pocket before your insurance company begins paying losses.
Types of Coverage
Most standard homeowners policies provide a basic limit of liability of $300,000 for property damages or injuries, but this amount can be increased for additional premium. There is also medical payments coverage under most policies, which would reimburse you for basic medical bills incurred under a liability claim. The standard policy carries a limit of $1,000 or $5,000 and would, for example, pay medical expenses for a neighbor who was bit by your dog or sustained a minor injury on your property.
How Much Should I Buy?
You should buy enough liability coverage to protect your assets. We live in a litigious society and you need to consider what could be at stake if you had a claim or lawsuit filed against you when someone is injured on your property or if you, a family member or your pet is responsible for hurting someone or causing damage to someone else's property. If you own property and/or investments that are worth a great deal more than the limits of liability on your current policy, discuss umbrella coverage with your agent or company.
In this day and age you don't need to be a millionaire to require an extra million dollars in liability coverage! Think about liability coverage as a safety net or extra liability insurance that starts paying losses after you've reached the limits of your basic policy. Umbrella is sold as a separate coverage. In fact, many insurance companies won't sell you an umbrella policy unless you already carry a certain amount of basic liability coverage-generally $300,000 of underlying coverage on your homeowners insurance policy and $250,000 of underlying coverage on your auto insurance policy. Many companies also require that you insure both your home and car(s) with them before they'll sell you an umbrella.
Cost of Umbrella Coverage
The cost of umbrella coverage depends on how much liability coverage you carry on your basic homeowners policy, often referred to as "underlying coverage." The kind of risk you represent will also be weighed into the cost of the policy. Generally speaking, you can purchase a $1,000,000 umbrella policy for as little as $150 to $300 a year extra in premium. You will pay less if your chances of being sued are fairly slim. For example, you'll pay less if you only own one home or are a low risk driver. On the other hand, if you own a house, a lake cabin, along with a ski boat and a snowmobile, you'll pay for having considerably more exposure to risk.