What is personal liability insurance?

Personal liability insurance protects you if you are sued for injuring or damaging someone else's property. It can cover your legal fees and other expenses that a court finds you liable for, up to the policy limit.

Here's an example of when you might need this coverage:

During a summer pool party, your deck becomes slick, and a guest trips and falls. She breaks her elbow and sues you for medical bills as well as pain and suffering. If a court finds you liable for the injury, your personal liability insurance will cover your legal defense and pay up to the policy limit.

Personal liability coverage, like coverage for the structure of your home, is a standard component of a homeowners insurance policy. Other types of home insurance policies, such as renters and condo insurance, include personal liability coverage as well.

Is personal liability insurance required for homeowners?

There is usually no law requiring you to purchase personal liability insurance in order to own a home. If you have a mortgage, you will almost certainly need personal liability coverage.

Most mortgage lenders require hazard insurance, which is a component of a homeowners policy that protects your home's structure. When you purchase homeowners insurance for hazard coverage, you will almost certainly receive personal liability coverage as well.

You may choose not to obtain homeowners insurance if you have paid off your mortgage or are purchasing a home without a mortgage. However, going without financial protection from lawsuits or the destruction of your home is a risk you should carefully consider.

What does personal liability insurance cover?

Personal liability insurance covers damage you cause to other people or their property, but not your own injuries or property damage. The following are some scenarios that your personal liability insurance would most likely cover.

Injuries you cause

While jogging, you round a corner and collide with a pedestrian, knocking him off the sidewalk. He breaks his ankle and will be out of work for several months. He files a lawsuit against you for medical expenses and lost wages.

Injuries on your property

On your icy front steps, a delivery person slips and falls. She files a lawsuit against you, accusing you of negligence for failing to put down salt that morning.

Injuries caused by your pet or child

Your dog Fluffy gets a little over-excited at the park and bites a child’s hand, leaving a wound that needs stitches. The child's parents sue you in order to recoup their medical expenses. (Please keep in mind that some insurers will not cover certain dog breeds or animals with a history of aggression.) Check with your insurance company to ensure that your dog is covered.)

Damage caused by someone in your household

Your son hits a long fly ball through a window at the house of his best friend. It shatters not only the glass but also a valuable vase inside. If you are found liable in court, your liability insurance may cover the costs.

Damage on your property that affects other people’s homes

A tree in your yard falls onto the roof of your next-door neighbor. A judge holds you liable for the damage because the tree was dying and you didn't have it professionally removed.

What does personal liability insurance not cover?

Below are some scenarios that personal liability insurance will not typically cover, as well as suggestions for other insurance policies that may. Check your homeowners policy for a complete list of exclusions.

Car accidents

You run a red light and collide with an SUV. The other vehicle's three passengers are all injured, and the SUV is totaled. Your liability car insurance would cover the medical and repair costs for the other vehicle's passengers.

Business liability

You run a home-based business, and one of your clients sues you for bad advice. Although the incident occurred in your home, personal liability insurance usually does not cover lawsuits related to business activities. Instead, you'll need commercial insurance.

Injuries to people within your household

Your living-with-you daughter trips and falls down the basement stairs. Personal liability insurance might cover her injuries if she were a guest in your home, but because she's a member of the household, she'll have to rely on her own health insurance for treatment.

Intentional harm

Your adolescent son and his friends spray-paint derogatory messages all over the outside of a nearby store. It is a crime, not an accident or an act of negligence, because they purposefully caused this damage. Your liability insurance will almost certainly not cover your son's defense.

How much personal liability coverage do you need?

Homeowners insurance policies typically have liability limits ranging from $100,000 to $500,000. If that isn't enough, companies that cater to affluent customers, such as Chubb, sell sums in the millions.

The amount of personal liability insurance you purchase is determined by the value of your assets, the likelihood of being sued, and your risk tolerance.

Consider purchasing enough personal liability insurance to cover your entire portfolio, including your home, savings, and investments. If any of the following lawsuit risk factors apply to you, you may want to choose a higher amount:

• You enjoy activities that could endanger others, such as skiing, hunting, or surfing.
• On your property, you have a swimming pool, trampoline, or other "attractive nuisance."
• You have a dog. (Confirm that your insurer will cover the breed.)
• You are a celebrity or a wealthy member of the community.
• You frequently throw parties at your house.

How much does personal liability insurance cost?

Personal liability insurance is most likely purchased as part of a homeowners policy, which costs $1,784 per year on average, according to a InsuredCircle rate analysis. That rate reflects a $300,000 liability limit, but increasing coverage is inexpensive. Increasing your liability limit to $500,000 increases your average annual cost by $8.