Owning your home signifies that you are officially a grownup, but along with homeownership comes many responsibilities that can make adulting hard. One of those adult things is having the proper coverages on your homeowner’s insurance. If you have a mortgage, coverage to protect the dwelling is required by the lender but even if you don’t have a lender to please, carrying insurance coverage on your home is a wise financial move. You may already know that the right insurance policy will protect the structure of your home if a covered loss occurs, but what about when the accident involves the people visiting your home?
Understanding Your Homeowners Policy
To get a good feel for how much liability, you need on your homeowner’s insurance, you first need a basic understanding of the coverages that are on your policy. Most homeowner’s policies provide coverage for the following:
- Dwelling- Your house
- Other structures- Think shed, fence or unattached garage
- Personal property- The stuff in your home
- Liability- A visitor gets hurt on your property
Now, this is just a quick overview. But each of those coverages above will have a limit next to it on your declarations page. That limit represents the amount the insurance company will pay out in the event of a covered loss. So, for example, if you have $575,000 next to your dwelling limit, your home gets struck by lightning and burns to the ground, the insurance may pay up to the $575,000 limit.
The liability limit works the same way, and most policies include $100,000 in coverage and go up from there. But instead of covering damage to your home, it covers another person that suffers an injury while on your property.
Personal Liability, the More You Know
When it comes to how much personal liability coverage you need on your homeowner’s insurance, it’s important to consider how much you are worth. Now, we know you are a priceless magical individual that you can’t put a price tag on. But when it comes down to battling a lawsuit in a courtroom, your entire net worth could be at stake. And not just what you have in the bank now, your future earnings could be in jeopardy as well. Even if you aren’t currently at full earning potential, it’s important to set your personal liability limits to protect prospective income.
Scenario number one– Let’s say you just moved into a gorgeous, 3000 square foot colonial home, with the perfect staircase for holiday decorating. Naturally, you want to have the annual Christmas party at your house. Well, your neighbor had a little too much eggnog and tripped on your brand-new Moroccan wool rug, fell down the stairs, hit their head and broke their arm. The hospital and physical therapy bills that will follow are your responsibility. And if you have been to the ER recently, you know even with health insurance the costs add up quick. But you were smart and took out a homeowner’s policy with at least $300,000 in personal liability coverage. Meaning the coverage will kick in and help with necessary medical expenses up to the covered amount.
Scenario number two– Maybe you aren’t the entertaining type. But you have a lovely split level that you just bought for you and your best friend, Bob, the dog. Since you commute every day into the city for work, you leave your dog at home with an open doggy door, so he can relieve himself while you are at work. Well, unfortunately, the gas man left your gate unlatched, and Bob got out. While Bob was roaming the neighborhood, he became frightened and bit your not so friendly neighbor Karen when she came up to him. Well, the bite wasn’t severe, but Karen is Karen and found an attorney willing to take you to court over it. She claims mental distress in addition to the bite injury. So now you not only have to get Bob out of dog jail but defend yourself and Bob in court.
Luckily, you have a vet and other neighbors to vouch for you and Bob, but court costs can get out of hand quick. The good news is you listened to your insurance agent and increased your personal liability limits to $500,000 and took out a personal umbrella policy to provide additional protection since taking your new job.
These are not the only incidents responsible homeowners have to worry about. Other frequent scenarios include falling trees, pool injuries, and injured domestic workers.
Breaking it Down
Not sure how much personal liability you need? Our trusted insurance advisors will be happy to walk you through all your exposures. But a good rule of thumb is to look ahead at least two years. For example, if a pharmaceutical rep’s salary was $100,000. She just bought a house for $300,000 and had personal property worth an additional $150,000, then realistically $550,000 in liability insurance may be enough. However, the caveat to that is if halfway through the policy term she was eligible for a $100,000 bonus or a $250,000 inheritance, the amount should really be $650,000 to $800,000. These limits may be over what a typical homeowners policy provides, and an umbrella policy may be necessary to make up the difference.
Ready to talk about your personal liability coverage? Ask your Coastal Insurance representative to review your current policy.