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Personal Liability Insurance

You've worked hard to own the home of your dreams, and you've been smart enough to protect it with homeowners insurance. Isn't that enough?

In many cases, yes. Your homeowners insurance offers you property and liability protection. But there are limits to how much damage it can cover, and unfortunately, legal fees and court-ordered judgments can eat through those limits in a snap.

You might not be able to avoid a lawsuit, but you can prepare for it by investing in an affordable personal liability insurance policy. Your forethought now may be the difference between solvency and bankruptcy later.

What Is Personal Liability Insurance?

Think of personal liability insurance — sometimes called umbrella insurance — as a cushion. It supplements liability coverage in your homeowners and personal auto policies when they've reached their limits.

So let's say your homeowners policy has a $100,000 limit for third-party accidents and lawsuits. That's the maximum amount your carrier can pay when someone claims you're responsible for their injury.

Even if you're sued for $105,000 in damages, your policy still can't cover the $5,000 past your limits unless you have personal liability coverage. Without umbrella coverage, you're responsible for any amount that exceeds your policy limits, whether that's a couple bucks or a few grand.

Don't I Already Have Personal Liability Coverage in My Homeowners and Auto Insurance?

Yes, but these policies have a limited amount of personal liability coverage. If you want more protection, an umbrella policy is a cost-effective, convenient option.

Let's say your auto insurance offers $500,000 in personal liability coverage. You know how expensive car accidents can be, so you want to increase your coverage. Generally, a personal umbrella policy fetches you an extra $1 million in coverage for just a few hundred dollars a year. For less than you spend on coffee annually, you'd have a total of $1.5 million to put toward personal auto liability claims.

Most personal liability insurance is very affordable. Just a couple hundred dollars a year can get you a $1 million policy.

I'll Never Get Sued, So Isn't Personal Liability Insurance Unnecessary?

Truthfully, the chance of getting sued is pretty low. That's one reason personal liability premiums are so affordable (about a couple of hundred dollars a year).

On the other hand, never say never. A lawsuit is one of the most devastating events that can happen to you, and paying for lawyers can deplete your savings. Worse? If you can't afford the judgement, the court might garnish your wages or seize your assets.

Considering what's at stake, the extra funds and peace of mind personal liability offers may be worth it for you.

But What if I'm Really Careful?

First, let's be clear. Anyone can sue you at any time for anything. Some file lawsuits because it's their only hope for paying their medical bills (remember the aunt who sued her eight-year-old nephew for breaking her wrist?).

Others might sue at a lawyer's insistence. For example, if a drunken party guest has a car accident on the way home, the damage they cause may be your responsibility. This is called host liquor liability, and while a lot of homeowners don't know about it, most lawyers do.

Other lawsuits are frivolous through and through, but you still have to respond to them and pay for your defense.

Long story short? You don't have to do anything wrong to find yourself embroiled in a costly lawsuit.

Even a frivolous lawsuit can cost you time and money.

Isn't Personal Liability Insurance Only for Rich People?

Nope. Granted, high-net-worth people should definitely consider a personal liability insurance policy. In fact, that's one of the first pieces of advice financial advisors often give wealthy clients.

But remember, lawsuits can happen to anyone, especially when emotions are running high after:

  • A brand-new car is totaled.
  • A child is hurt on your trampoline.
  • A drunk-driving accident causes injuries.

An angry person wants to make sure somebody pays. If that someone is you, a personal liability policy can help cover the cost.

Personal Liability Insurance Sounds Too Easy. What's the Catch?

It's not exactly a catch, but insurers may require you carry the maximum coverage on your underlying policies before they sell you an umbrella policy. That's because personal liability insurance only pays out once the underlying policy (e.g., your homeowners and personal auto insurance) has paid all it will pay.

What if I Just Risk It?

Think twice before you make that decision. If your house burns down and your property insurance doesn't cover a new television or nice clothes, you could probably make do without them while you save up.

But liability insurance is different. When someone claims you're responsible for their injuries, you can't ignore them just because you can't pay up. If you do, a judge can grant a default judgement that may result in:

  • Wage garnishment.
  • Asset seizures.
  • Car repossession.
  • Property liens.

To learn more about your personal liability coverage options, apply online on We can send quotes from top-rated insurers right to your inbox so you can compare rates at your own pace.