Homeowners liability insurance, like insurance generally, is something that most people don’t think about until they need it. If you, your family, or even your pets, injure another person or that person’s property, you might face a lawsuit -- whether or not the injury is your fault.
Homeowners liability insurance may cover your legal liability (up to the policy limits) if the injury occurred on your property or away from it. So, it is important to protect yourself from these lawsuits by making sure your home is adequately insured by homeowners liability insurance.
Homeowners' Insurance Basics
Homeowner liability insurance is a type of insurance that indemnifies owners of private homes against loss, damage, or liability to their homes arising from an accident or other unknown event. Homeowner liability insurance combines first party coverages and third party coverages.
- First Party Coverage. First party coverages protect against personal loss or damage sustained by the insured (i.e., losses of the home or its contents due to theft or fire).
- Third Party Coverage. Third party coverages protect against bodily injury and property damage based on the insured’s acts (i.e., a slip and fall accident). Homeowners liability insurance policies that protect against premises liability lawsuits are a type of third party coverage.
Types of Coverage
Homeowners liability insurance policies usually include third party coverages for the following claims:
- Medical payments to others. This form of liability insurance pays for the medical expenses incurred by people for injuries sustained in your home or property, without regard to the fault of the injured person or you.
- Personal liability insurance. This form of liability insurance provides coverage for personal liability for bodily injury or property damage. This policy protects against accidents that result in bodily injury, sickness, or disease (i.e., a guest slips in the bathroom) or property loss or damage (i.e., your child hit a baseball through the neighbor’s window). This type of coverage usually covers the homeowner and his or her spouse, relatives, and other household residents under their care.
- Residential employees insurance. Homeowners liability insurance may provide workers’ compensation and employers’ liability coverages for employees of a house, such as maids, nannies, and adult caregivers. This usually does not extend to repair persons, such as a plumber or carpenter, because they are generally not employees, but independent contractors.
- Umbrella policies. An umbrella policy is a type of coverage that you purchase on top of another coverage. Essentially, it provides you with additional coverage in excess of the underlying coverage. However, before the umbrella policy comes into effect, the underlying primary policy usually must be exhausted. So, if you have purchased the umbrella policy from a different insurance company than the primary policy, the primary insurance company has a duty to defend you against lawsuits until the primary coverage is exhausted. Umbrella policies may also provide coverage for losses not covered by the underlying policy. In this situation, you would not need to exhaust the primary policy.
How Much Coverage Should I Purchase?
Policies start at about $100,000 coverage, however, having at least $300,000 worth of coverage is recommended by the Insurance Information Institute. If, however, your net worth is more than that amount, then you should also consider purchasing a $1 million umbrella policy for extra protection.
The main thing to consider is that if a personal injury claim is filed by a third party, it can get expensive, especially where serious injuries result. You want to make sure that your policy limit is reasonably high enough that you probably won't be personally on the hook if a valid claim exceeds the policy ceiling.