The liability portion of your homeowner's policy is designed to cover unintentional injuries on the premises and unintentional damage to other people's property. In other words, injuries caused by your negligence are covered; those you inflict on purpose are not covered.
Here are a few tips on how to cover yourself adequately. Remember, it takes only one person who is seriously injured by your negligence to generate a huge liability award and deplete your financial nest egg, not to mention your psychological well being.
What kind of liability coverage is provided by a typical homeowner's policy?
A typical homeowner's policy includes $100,000 of liability insurance, which won't go far if someone is severely injured. For a slight increase in premium you can raise that to $300,000 to $500,000, and some companies offer coverage of $1 million or more. Typically, coverage includes harm caused by your children and pets, except intentional harm if the child is over thirteen. If your pet attacks people routinely, the insurer may cancel your policy or refuse to renew it.
Most standard homeowner's policies do not cover:
- employees and clients of your home-based business, including the children in your home-based day care if you take in more than three children and have no special endorsement;
- claims by one member of the household against another;
- any disease you pass on to someone.
What is an "umbrella" liability policy?
An umbrella liability policy, also called a "personal excess liability" policy, is designed to protect you in case of a big judgment that would quickly eat up your regular policy coverage. These policies are relatively inexpensive because the insurers are betting you'll never need to file a claim. Their coverage takes up where your home and auto policies leave off; thus you will need to have certain levels of basic home and auto liability insurance before you can qualify for an umbrella policy. Generally, these would be $100,000 in liability coverage on your homeowner's policy and $250,000/$500,000 on your auto ($250,000 per person, $500,000 per accident; or sometimes $300,000 in single-limit coverage).
Your premium for the umbrella policy will be determined based on the number of houses, rental units and vehicles you own. If you have one house and two cars, a typical premium costs $100-150 for $1 million in coverage. You will get $2 million in coverage for only about $50-$100 more in premium costs.
Who needs an umbrella policy?
People usually determine their need for umbrella liability coverage not so much by how many hazards they have on their property as by the assets they have to protect. After all, the wealthier you are, the more you have to lose if someone is injured on your property. Some people buy $5 million in coverage, and some even take out umbrellas over their umbrellas. Consult your insurance agent to help decide what type and amount of coverage is best for you.