What Is Homeowner Liability Insurance (And Whether You Need More)

What does the liability insurance baked into a homeowner’s policy usually include?

According to insurance provider Allstate, your basic liability policy covers:  

• Medical bills for visitors who have an accident in your home as a result of negligence (you failed to fix a guardrail, for example)
• Pain and suffering endured by the person injured in your home
• Lost wages if the person injured is unable to return to work
• Death benefits, should the unthinkable happen and the accident turn fatal
• Legal expenses if you are sued

Some policies may also cover damages from a covered loss that happens away from home — for example, if you accidentally cause damage to your hotel room.

Meanwhile, typical liability insurance exclusions are:

• Auto-related accidents
• Injuries or property damage intentionally caused by you or household members
• Injuries sustained by you or members of your immediate household

While homeowner liability insurance excludes bodily injuries suffered by you or your immediate household members, it does cover third-party claims if you or a household member accidentally injures someone else or damages another person’s property.

If you’re renting out rooms or have more extended family living in your home, check with your insurance agent to confirm the extent of your coverage for those living in the home.

How can you increase your liability coverage?

If you feel you want or need the added protection, there are a few ways to increase your liability coverage.

Option 1: Call your insurance agent to increase your coverage limit

Request to bump it from the standard $100,000 to an amount that makes the most sense for you. Options generally include $250,000, $500,000, or $1 million in coverage. The higher your limit, the higher your premium will likely be.

Option 2: Purchase an umbrella policy

An umbrella policy increases your coverage limit and can be applied across all your insurance policies. For example, if you have insurance on your house, car, and boat, your umbrella policy will cover them all.

Umbrella insurance policies are executed once you’ve reached your homeowners liability limits. In other words, if you have a $100,000 liability policy under your homeowner’s insurance, but you’re obligated to pay out $200,000 as the result of a lawsuit, your umbrella policy will kick in for the additional $100,000.

Bodily injury, personal injury, property damage, and landlord liability are all usually covered under an umbrella policy. The policy will typically cover you and the other family members in your household.

Angie Cole, a top-selling real estate agent in Raleigh, North Carolina, says that, personally, she and her husband carry an umbrella policy on their property. “Our insurance agent chatted with us and recommended an umbrella policy; then we talked to our closest friends and they all had one, too,” she says.

Terry Bunch, a real estate agent with 22 years of experience in Naperville, Illinois, says that he would recommend umbrella coverage to his clients if “they had a personal need for it, or if their home has attractive nuisances, like a pool.” Other insurance professionals advise homeowners to purchase an umbrella policy if you have teenage drivers in the household.

Umbrella policies are usually sold in $1 million increments and typically cost about $383 a year for $1 million of coverage.

When should you consider increasing your liability coverage?

“Additional liability insurance is one of those policies that is inexpensive, and there is a lot of value behind it,” says Cole.

Although liability insurance is wrapped up in your homeowners insurance policy already, you may want to consider purchasing supplemental liability insurance under these situations: 

• You have a pool
• You have large dogs — or any dog, for that matter
• You own a trampoline
• You’re renting out part of your property on Airbnb or another home-sharing website
• You’ve accumulated or acquired many assets

“Any time you have a decent net worth, it is smart to put an additional liability policy in place,” says Cole. For example, if you own several nice cars, a boat, and a house, your policy limits should be high enough to collectively cover everything that you own. If that’s not the case, you should consider an umbrella policy that will stretch to cover your high-priced assets.

If you’re unsure whether you need additional homeowner’s liability insurance, Kiplinger has a calculator to help you determine how much umbrella insurance coverage you need.

And if you’re on the fence, Cole has this advice: “Extra coverage is a common thing to put in place,” she says. “And in the grand scheme of things, it is usually worth it, because the cost is minimal.”

Header Image Source: (Shutterstock.com/Contimis Works)