You purchase homeowner's insurance to protect yourself financially if your home or possessions are damaged. But you also need to protect yourself from lawsuits by others who may be injured or have their property damaged while on your property. This is the purpose of homeowner's liability insurance.
The average homeowner's insurance policy includes between $100,000 and $300,000 of liability coverage. Most policies offer the option of buying additional coverage for an extra premium. Since most of us are trying to trim our budgets, deciding to buy "extra" anything would seem to be a waste. So how do you know if you need additional liability insurance?
You may think that $300,000 sounds like plenty of coverage, but there are several things you need to take into consideration. As we all know, personal injury lawsuits can reach exorbitant dollar amounts and drag on for years. Liability insurance can cover both the amount of the lawsuit and your legal fees, and the insurance company will represent you in the case. If you've ever required legal services, you know how much that can cost.
While there is no way to predict exactly how much you may be sued for, your goal is to protect your personal net worth. In order to determine that value, you would add up all your assets (your income, the equity in your home, and investments) and subtract your outstanding debt. This is the minimum amount of coverage you should have.
You should also take into consideration your level of risk. If you have a pool, pets, or a large piece of property, or have frequent professional or private visitors, you have increased risk. Look around your home and yard. How many different ways can you imagine someone getting injured there? Also keep in mind it's always better to be over-insured than to be caught unprotected in an unforeseen situation.
If your homeowner's policy does not offer enough liability coverage for your needs, you may consider purchasing an umbrella policy. This is a separate policy that will go into effect if the liability coverage on your homeowner's policy is exceeded. The cost of an umbrella policy is based on how much liability coverage you already have.
In this day and age, when everyone seems to be at risk of being involved in a lawsuit, homeowner's liability coverage is a bargain and practically a necessity. If you own a home or property, you should consider your risk and your personal worth, and discuss your liability coverage with a reputable insurance agent.