What does liability insurance cover?

What does liability insurance cover?

No one is expected to be responsible for a catastrophic event that injures another person or their property, but it does happen. And it can be expensive.

This is where liability insurance comes in. Instead of indulging your savings or salary to cover someone’s medical expenses or repairs, your insurance company takes care of it.

“It’s really about taking a small amount out of your pocket to transfer the risk to someone with a much larger pocket, an insurance company,” he says. Damon Winter, a financial advisor at Lake Oswego. Liability coverage is covered in homeowners and auto insurance policies, but there are other areas where you may need coverage as well.

Here’s what you should know about the different types of liability insurance, what each covers and how much full protection costs.

Types of liability insurance

Liability insurance can be divided into three categories: personal, professional and commercial.

1. Personal liability insurance

If you own a home or drive a car, you already have some liability insurance. Liability coverage is a standard part of homeowners and auto policies, and avoids you paying for someone else’s injuries or property damage when an accident occurs. Sometimes the insurance company pays even when it’s not your fault.

Take home insurance, for example. If a visitor gets hurt on your property, whether it’s at the pool, during a party or because your dog is bitten, you may be liable for their medical bills. But since you pay for insurance, the insurance company covers it.

Liability coverage within the homeowners policy is extensive. Legal defense costs are usually paid if the injured person files a lawsuit, plus their salary if they can’t work, damages awarded by a court for pain and suffering or funeral costs if the injury results in death. It can also cover legal costs if you are sued for defamation, whether or not it happened in your home.

With auto insurance liability coverage, your insurance company pays for the victim’s medical expenses, lost wages, court decision settlements or property damage when the accident is your fault. But depending on the type of vehicle and the severity of the injuries, they can build up quickly. You are responsible for paying any expenses that exceed your coverage limit.

2. Professional liability insurance

Professional liability insurance covers small businesses or individuals who provide advice or services, such as accountants, financial advisors, doctors, and lawyers. Otherwise, known as errors and omissions insurance, it covers legal defense fees when a client or patient sues a professional, and settlement costs if found liable.

“It basically protects you from unhappy customers,” says Mark Friedlander, a spokesperson for the Insurance Information Institute.

3. Commercial liability insurance

There are several forms of commercial liability insurance. It generally protects the financial interests of the company and its owner from claims for bodily injury and property damage from employees, contractors or sponsors. Manufacturers often have product liability insurance, for example, that pays for legal defense and any court-granted settlements if the product has a defect that causes bodily harm or property damage.

How much coverage do I need?

Personal insurance policies come with a minimum liability coverage, but you can — and often should — buy more, says Winter. Increasing your limits will usually result in a higher monthly payment, but one bad liability claim can “crush” you financially, he says, so the protection is worth the extra cost.

car liability insurance

States set minimum motor insurance liability requirements for drivers, which are divided into three parts:

  • Limit of bodily injury per person: The amount the insurance company will pay for medical bills for one person when they are injured in an accident caused by the policyholder. It also includes legal fees if the policy holder is sued by the victim. according to data From insurance comparison site The Zebra, state minimums range from $15,000 to $50,000.
  • Bodily injury limit per accident: The combined amount the insurance company will pay for the medical bills of many people injured in a faulty accident. The state minimums range from $30,000 to $100,000.
  • Property damage limit: The amount the insurance company will pay to replace or repair other cars or tangible property (a lamppost or fence, for example) that has been damaged in a faulty accident. lower country Ranging from $5,000 to $25,000.

Friedlander says most insurance professionals recommend drivers 100/300/100 annual auto liability coverage, which means $100,000 in bodily injury coverage for each victim, $300,000 in bodily injury coverage per accident and $100,000 in property damage coverage.

It is only possible to get liability insurance, but this means that you do not have coverage for damage to your vehicle in an accident. a Responsibility only policy With 100/300/100 coverage it can cost between $42 and $84 a month for a single 30-year-old man driving a Honda Accord, The Zebra estimates.

Keep in mind that these prices are samples; Your individual driving history and location determine, among other things, how much you pay. Plus, adding comprehensive and collision coverage — part of your policy that pays for damage to your car — will increase your monthly payment.

Homeowners liability insurance

A standard homeowners or renters policy provides at least $100,000 in liability insurance. This covers visitors’ medical bills in the event of an accident on the property, as well as legal fees and settlement costs if the visitor sues you.

It also covers actions taken by the homeowner, family members who live with them, or pets – anywhere in the world. If you wreak havoc on a hotel room, for example, and cause thousands of dollars in damage, the insurance company will step in and cover the bill up to your policy limits. (This does not mean that you have discretion – insurance companies can increase your monthly payments if there is such a claim.) The maximum limit for home insurance liability coverage is $500,000.

Winter says knowing how much coverage you need stems from one question: “What do you have to lose? That’s really a big factor.” He says that even if you don’t think the odds of something bad happening are high, you should consider the financial impact if something does happen. For many people, the potential loss is significant.

According to ValuePenguin, an insurance comparison marketplace, the average homeowner can Increase their liability coverage without having a significant impact on their monthly payments. For example, increasing coverage from $300,000 to $500,000 costs only an additional $10 per month, based on a sample homeowner profile. Generally, prices will vary based on the location of your home and other factors.

Comprehensive personal liability insurance

A stand-alone policy called comprehensive personal liability insurance provides a cost-effective way to obtain additional coverage, Friedlander says.

If you have at least $250,000 in per-accident liability coverage on your car policy and $300,000 in liability coverage on your homeowners policy, you can qualify for a so-called umbrella policy that steps in when you reach those basic limits. “It gives you a much greater cover than financial protection,” says Friedlander.

For example, let’s say you’ve had a car accident, seriously injuring another driver and totaling their luxury car. They file a claim with your insurance company for medical expenses totaling $150,000 and property damages totaling $200,000. But you only have $100,000 for bodily injury coverage and $150,000 for property damage coverage. This leaves you responsible for the remaining $100,000. Umbrella policy covers that.

Umbrella policies start at $1 million in coverage and cost between $150 and $300 a year, according to the Insurance Information Institute. “It’s not a big expense, but it’s peace of mind,” Winter says.

Commercial and professional liability insurance

Coverage needs for business or professional liability insurance vary based on your company’s size, location, and structure, among other things. It is best to consult a licensed insurance agent or financial advisor for the appropriate amount.

special considerations

Unlike most other insurances, liability coverage is not subject to a deductible. This means that you do not have to pay anything out of pocket before the insurance company steps in. But once you hit the annual limit for liability coverage, it’s up to you to pay the difference (unless you also have a comprehensive policy).

Liability insurance does not provide protection for criminal behavior or intentional actions – only accidents. Homeowners should also note that their liability coverage does not extend to small businesses they operate from home. Friedlander says separate work or professional liability insurance is recommended in those cases.

How to get coverage

Since liability insurance coverage is a standard feature of homeowner, car, and renter policies, you don’t need to shop for those separately. Instead, pay attention to coverage amounts when you look for a new policy or update your existing policy.

“Don’t just choose minimal coverage or even low coverage, get enough coverage that’s enough to protect the risks,” Winter says. When you get quotes from insurance companies, you will be able to see the monthly cost of different coverage amounts. The best step is to choose the highest level of coverage you can comfortably tolerate.

If you’re looking for backup coverage with an umbrella policy, start by checking what your current insurance provider offers before shopping. Putting all your policies in one place during a crisis can save time and headaches.

The tips, recommendations, or ratings in this article are for Buy Side from the WSJ Editorial Team, and have not been reviewed or approved by our business partners.

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