Understanding Personal Liability Coverage

It’s easy to disappear down a rabbit hole when you’re trying to get a basic grasp of your home insurance coverage — especially components such as personal liability insurance. It isn’t necessarily intentional on your insurer’s part, but it sure can be stressful when you’re staring down a $100,000 legal bill and you can’t figure out whether you’re on the hook.

Personal liability coverage, which kicks in when people get hurt or have accidents on one another’s property, is a notoriously deep pit. Everyone has something to say about it, and the advice you find online is often contradictory.

This home insurance guide will cut through the smoke and mirrors of personal liability coverage. We’ll cover all the basics, as well as a couple thornier points, including:

• What personal liability coverage is
• The requirements for filing a personal liability claim
• What personal liability insurance actually covers
• Cases in which your personal liability insurance doesn’t cover you
• Medical payments to others vs. personal liability coverage
• How much personal liability coverage you need

What Is Personal Liability Coverage?

If I said “home insurance,” the first words that popped into your head would probably be “property damage.” A storm knocking a tree onto a garage, for instance, or a wildfire burning down a home. And you’d be right. Protection against disasters forms the core of your standard homeowners policy, and property damage is far and away the most common claim.

But you don’t need to be living in California wildfire country to have a serious accident on your property. What if a tree branch in your front yard fell onto your son’s best friend and he ended up in the emergency room, or you accidentally lit your next-door neighbor’s drapes on fire? Those types of accidents, which involve human negligence, get their very own section in your home insurance policy—a section called personal liability coverage.

Personal liability claims are pretty rare, but it’s extremely important to know how they work. If you ever get hit with bills for accidents stemming from your negligence, the amounts could be astronomical.

What Are the Requirements for Filing a Personal Liability Claim?

Generally, you should try to avoid filing personal liability claims. If you do, even the best insurance companies will raise your rates substantially because you’re a proven risk. But sometimes you have no choice. When would you be justified in filing a personal liability claim? When you have an accident in which:

• You were negligent in some way
• Your negligence injured a person or their property
• The damage was substantial

Your insurance would cover things such as:

• Medical bills
• Legal fees
• Clean-up and repair costs

Don’t forget that your personal liability insurance covers you, your family, and your pets. If your teenage daughter accidentally lights the neighbor’s drapes on fire, she’ll be covered. Ditto if your dog eats the drapes.

That’s the gist of it. There’s a whole lot of ambiguity in a term like “negligence” and disasters involving curtains are pretty rare, however, so let’s take a closer look at how your personal liability insurance may actually come into play.

What Does Personal Liability Cover?

We now know what personal liability coverage is, so here are three real-life scenarios when you may need to file a personal liability claim.

Someone Sues You

Imagine you have a less-than-ideal relationship with your next-door neighbor, Skip. Skip comes over one day to complain about your kids trampling his grass again, and he puts his foot through the rotten floorboard on your back porch you’ve been meaning to fix forever. Skip breaks his wrist and loses two front teeth in the fall. As soon as he can hold a phone, Skip is on the horn with his lawyer.

Can you file a personal liability claim? Yes.

What you’d need it for: Legal fees and medical bills.

Someone Is Badly Injured on Your Property

Let’s imagine a slightly different scenario in which Skip is the best next-door neighbor in the world and the same thing happens. Skip sticks his foot through a bum floorboard on your back porch and hurts himself. He’s not going to sue, but Skip is in really bad shape. The fall destroyed his leg and Skip is going to need screws and some facial reconstruction.

Your coverage for medical payments to others (more on this in a sec), which maxes out at $5,000, won’t cover Skip’s hospital bills, so you’re considering filing a personal liability claim.

Can you file a personal liability claim? Yes.

What you’d need it for: Substantial medical bills.

You Destroy Someone Else’s Property

Situations in which you or someone in your family causes catastrophic property damage are rare, but they happen. Imagine you just installed solar panels on your roof, but the contractor didn’t secure them properly. Two of the panels divebomb the neighboring property, caving in the roof of your neighbor’s Lexus, taking out a dining room window, and destroying the hardwood floor inside. The bill, you estimate, is easily going to clear $30,000.

Can you file a personal liability claim? Yes.

What you’d need it for: Substantial property damage.

Your Pet Attacks Someone

We’re always talking about dog attacks in the insurance business, even though they rarely result in injuries of any kind.2 In fairness to canines, let’s say your crotchety Sphynx cat scratches your friend’s toddler, resulting in serious eye damage. Your friend’s husband lawyers up to the tune of $1 million in damages. In this case, you’ll not only file a personal liability claim, but you’ll also be hoping you took out extra liability coverage, which ranges from $100,000 to $1 million in some states.

Can you file a personal liability claim? Yes.

What you’d need it for: Substantial legal and medical fees.

When Does Personal Liability Insurance Not Cover Me?

There are a few clear-cut cases in which no insurance company will have your back. Here are the three big ones:

You Intentionally Damage Someone Else’s Property

You probably understand where this is going, but I want to get it in writing in case you think your insurance policy will cover you if you take a hammer to your loud neighbor’s Tesla. It won’t.

You Damage Someone’s Property in Your Car

If your son drives up the lawn and onto his ex-girlfriend’s porch for reasons unknown, it’s a job for your auto insurance, not your homeowners policy. If that ever does happen, you’ll have to have a pretty great auto insurer if you expect help.

Someone Gets Hurt on Your Property While You’re Conducting Business

Let’s say you host paintball tournaments on your property as a side hustle. One of the participants gets hit in the face really badly and sues to the tune of $200,000. You’re not covered here. If you’d been hosting a birthday party, maybe. This, however, would qualify as a business, and personal liability doesn’t cover businesses.

Medical Payments to Others vs. Personal Liability Insurance

When you get the chance, open up your insurance policy. One section down from personal liability (E), you’ll notice a section called medical payments to others (F). You may be wondering why you have a second section for medical payments when I just told you personal liability covers medical expenses.

Personal liability does cover medical payments — big ones — and the ensuing lawsuits. But for smaller sums, when no one is suing and there are no major medical procedures involved, you may consider turning to your insurer under a Section F claim.

To give you an idea of how small we’re talking, many homeowners take out only $1,000 worth of medical payments coverage. You can, however, raise the amount to $5,000.

How Much Personal Liability Coverage Do I Need?

Figuring out how much insurance you need is serious homework. Choosing the right personal liability limit is no exception. Serious accidents happen, and they can happen on your watch — no matter how careful you are.

That said, there are some guidelines. Insurers set the default amount of personal liability coverage at $100,000, for instance. The upper limit is $1 million, but that varies from state to state. Why would you want to take out more personal liability coverage?

Here are three scenarios:

• You have a pet with a history of aggressive behavior.
• You or a member of your family plays team sports.
• You have a swimming pool or some other “attractive nuisance,” such as a trampoline.

Final Thoughts

Personal liability claims are rare, which is a good thing. The reasons are twofold: Serious negligence resulting in human injury or property damage isn’t an everyday event, and no homeowner wants to see their insurance premium inflate by 20 percent, which may happen if you file a personal liability claim. You’d much rather settle without your insurer or any lawyers.

As a conscientious homeowner with your own interests at heart, you need to know how personal liability coverage works and how much you need, because there may come a day when you need to file a claim.

That ties in with the final point I’ll make: This guide is only a guide. If you’re not sure whether your situation requires extra personal liability coverage, talk to your insurance agent. This is one case in which you really can’t afford not to be more safe than sorry.

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