Introducing the Six Parts of a Homeowners Policy
Though the cost of coverage for your personal liability for injuries and
property damage that you cause represents a small part of your total
Renters insurance virginia’s
bill, in my opinion this is just about the most important coverage
in the policy. Why? Because it covers lawsuits and the cost of defending
against lawsuits, and because it’s so comprehensive, covering most of your
non-vehicle personal liability worldwide.
Here are some examples of claims that Coverage E would cover, including
some from my own files:
✓ Your 6-year-old spills red punch on the neighbor’s white carpet, which
requires a $3,000 carpet replacement.
✓ You get sued by a neighbor who, in spite of your repeated warnings, has
allowed his child to climb your fence and harass your German shepherd.
The child gets bitten, and you get sued.
✓ Your riding lawnmower kicks up a rock, hits a neighbor, and injures her.
✓ A child is hurt while you’re babysitting her.
✓ In a baseball game, your teenage son throws errantly to home plate
and hits another player in the face, causing a loss of vision. That player
grows older, still suffers from a loss of vision, and sues five years later
✓ You hit someone in the face playing racquetball.
✓ You’re snowboarding and collide accidentally with a skier who sues for
✓ Playing golf, your errant tee shot hits a bystander in the head. (Happens
to me all the time.)
The bottom line? Coverage E is great coverage! Most homeowner’s policies
include the first $100,000 of coverage at no extra charge.
The two biggest mistakes I see people make with Coverage E is not buying
more than the $100,000 of free coverage, and not setting their personal liability
limits to match their other liability policy limits (on cars, cabins, boats,
and so on).
You don’t know where the lawsuit may come from, so you want the same
amount of coverage protecting you no matter where it comes from. You
wouldn’t want different liability limits for different policies any more than
you’d want different liability limits for different days of the week!
How much liability coverage should you buy? Here are some considerations:
✓ Your suability factor: How suable you are is affected by the size of
your bank account, your income, your future income, and your asset
prospects (in other words, inheritances). In short, your suability factor
represents how likely it is that an attorney for the person you injure
will come after you personally if you don’t have enough insurance. (See
Chapter 5 for more on suability.)
✓ Your comfort zone: How high do you need the limits to go for your own
peace of mind?
✓ Your sense of moral responsibility: Many people with a modest income
and few assets buy high liability limits to be sure that anyone they may
hurt gets provided for. If you’re one of these thoughtful people, I tip my
hat in admiration and respect.
The insurance cost of higher limits is minimal. Additional liability insurance
is truly one of the best values in the insurance business. An extra $200,000
costs only about $15 a year; an extra $400,000, only about $25 a year!
So, how much liability coverage should you buy? Here’s my bottom line advice
regarding liability limits: Choose a liability limit that considers your current
and future assets and income, feels emotionally comfortable, satisfies your
sense of moral responsibility to others, and matches what you would expect if
you were the one suing. Bottom line: In my opinion, anyone with less than
$500,000 liability coverage is under-insured. Most people should have limits of
$1 million or more.
Whatever limit you decide on, be sure to adjust your auto, boat, and personal
liability limits to match.