The decision of whether to purchase homeowners’ insurance can be an abnormal one. With most types of insurance, the purchaser buys the insurance with a fairly clear vision of what a claim under the policy would look like.
For example, when a person buys an automobile policy, that person expects that a collision might lead to a policy claim. When a person buys a health insurance policy, that person expects that an illness or injury might require medical care that is covered under the policy.
Homeowners’ insurance is somewhat different in that it is difficult to foresee the type of problem that would lead to a claim. A policy will often cover fire damage, water damage, weather damage, thefts, dog bites, slip and falls, and many other types of claims. Each individual category of claim seems extremely unlikely to actually happen. It is only when all of the categories are considered together that the policy seems more worth buying.
This article discusses some categories of homeowner insurance claims that many homeowners may not consider until they are facing liability: personal injury claims.
People don’t tend to think too heavily about personal injury claims when deciding whether to buy homeowners’ insurance, because personal injury claims are not particularly common. The most common type of homeowners’ insurance claim is due to damage from wind and hail. The second most common is from water damage and freezing. Vandalism and malicious mischief claims come in third. Fire, lightning, and debris claims come in fourth. Theft claims come in fifth.
But the size of most of those claims is relatively small. On the other hand, the dollar amount of a personal injury claim can be very high. In fact, the average size of a personal injury claim comes in second, only to fires.
So, while personal injury claims may not be particularly common, when they do occur, the cost of the claim can be very high. That makes personal injury claims a risk worth considering when deciding whether to purchase homeowners’ insurance.
The possibilities are nearly limitless. Basically, any injury that occurs on a homeowner’s property could potentially trigger a lawsuit and an injury settlement. Here are a few common examples:
The most obvious benefit is that the insurance company -- and not you -- should pay any judgment or settlement to the injured party.
But there is a secondary benefit that is often overlooked: the insurance company will usually provide an attorney to deal with the lawsuit. Lawsuits can be very expensive to defend against, even when the defendant wins. Without homeowners’ insurance, a homeowner would usually have to hire a lawyer to defend, even against frivolous lawsuits. In some cases, the cost of hiring an attorney might eventually even exceed the value of the claim. So, the benefit of having an insurance company’s attorney defend against lawsuits should not be overlooked.
Absolutely not. Homeowners should carefully read all insurance policy documents before signing anything. Some policies might not cover personal injury claims at all. Other policies might cap insurance coverage at an unreasonably low amount, leaving you on the hook for any claim that exceeds the policy limits.
For example, imagine a homeowner with a swimming pool buys an insurance policy with personal injury coverage capped at $100,000. A neighborhood child drowns in the swimming pool. The family of the child sues for $1,000,000. The insurance policy is not going to do the homeowner very much good if the family of the deceased child wins a verdict for that amount. The insurance company will only owe $100,000. The homeowner will be on the hook for the other $900,000.
Moreover, not all insurance companies are the same. Some companies have strong reputations for honoring claims by their customers. Others have reputations for looking for any loophole that they can find to avoid paying claims. So, not only do the terms of the policy matter, but the company selling the policy also matters.