Do You Need More Liability Protection?

Liability insurance protects individuals and businesses in the event they’re held financially responsible for injuring someone or causing property damage. You probably already have this important protection, but do you have enough?

Personal Liability Insurance
Despite the common belief that only people with substantial wealth or assets are the targets of lawsuits, that’s not necessarily the case. Accidents can happen anywhere, to anyone, and even people of modest means may be at risk. For example, here are some common situations that might result in a liability claim:

• Your dog escapes from the house and bites a delivery person
• A neighbor’s child is hurt while jumping on your backyard trampoline
• Your vehicle broadsides another, injuring the driver

Unfortunately, if you’re sued, your assets are potentially at stake–your savings, your investments, and in most states, even your home. Even if the claim is eventually proved groundless and you’re not held liable for damages, the cost of mounting a defense can be high.

That’s why personal liability insurance is so important. Not only does it cover any court awards you’re required to pay as a result of damage or injury caused by you, your family members, or your pets, but it also covers your legal bills, up to policy limits.

You Probably Already Have Some Coverage
Homeowners, renters, and auto policies all contain liability coverage, so you may already have a basic layer of protection. However, you may not have enough, especially if you have only the minimum required. For example, liability limits for homeowners insurance generally start at $100,000, while required minimum limits for auto insurance in most states range from $30,000 to $60,000. Often, you’ll need far more liability coverage than this to adequately protect your assets.

Ask an insurance professional to review your liability limits and help you decide how much you need, based on factors such as your age, assets, income, and lifestyle.

If You Need More Coverage
What if you have the highest available coverage limits but you still need an additional layer of protection? Consider purchasing an excess liability policy, also called an umbrella liability policy. Because it offers higher coverage limits (often starting at $1 million) than basic personal liability insurance, an umbrella policy will cover you for larger losses.

You’ll need to have a certain level of underlying liability coverage (generally between $100,000 and $500,000) in order to purchase an umbrella liability policy, because the umbrella coverage kicks in only after you’ve reached the limits of your underlying policy. For example, if you have an auto policy with a liability limit of $300,000 per accident and a $1 million umbrella policy, your auto policy would cover the first $300,000 of a $700,000 claim and your umbrella policy would cover the remaining $400,000.

Business and Professional Liability Insurance
The widely publicized case of a dry-cleaning business that was sued for $54 million over a lost pair of pants illustrates the importance of business liability protection. Although the owners of the business prevailed in the lawsuit and were awarded court costs (not including attorney’s fees), they did not have liability coverage, and they may never recover the tens of thousands of dollars they spent mounting a two-year defense against this lawsuit.

While businesses can’t always prevent such liability claims, they can purchase coverage for the special risks they face. One option is commercial general liability insurance, which is often part of a business owners policy. Business umbrella liability policies that offer higher liability limits are also available.

However, some liability risks are unique to certain businesses or professions, so you may also need specialized coverage. For example, if you work in an occupation that is particularly vulnerable to professional liability (e.g., law, medicine, day care), you may also need a separate professional liability policy, usually called malpractice coverage or errors and omissions coverage. Many other types of specialized liability coverage are also available.

Talk to an insurance professional who can help you determine the types and amounts of liability coverage that are appropriate for your business or profession.