How Much Personal Liability Coverage Do I Need on a Homeowner's Insurance Policy?

While house ownership provides numerous benefits, it also carries significant risks, such as personal liability for accidents on your property. Although personal liability insurance is included in most homeowner's policies and can help protect you financially if, for example, someone is injured in your house, it's a good idea to evaluate your policy's limits to ensure you have the appropriate level of coverage.

Coverage for Personal Liability

Most homeowners insurance policies cover four areas: structural, personal property, temporary living expenditures, and personal liability. The first three components protect you from financial loss if your property is damaged due to a covered event, like a fire or tornado. Physical liability insurance protects you against financial loss if you are sued for causing another person's personal injury or property damage. It normally covers both the costs of defending you in court and any damages awarded by the court. Personal liability coverage is typically included in the personal liability portion of your homeowners' policy. This coverage pays for modest medical expenses if someone is hurt in your house.

Normative Limits

Unlike minimum auto insurance limits required by law in most states, home insurance does not often include legally imposed minimums. Still, your mortgage company may require specific types of coverage. According to the Insurance Information Institute, minimum personal liability limits typically begin at roughly $100,000, but the institute recommends a minimum of at least $300,000.

Consider the Following:

Numerous factors, including your salary and your investments and other property value, determine the amount of personal responsibility you should carry on your homeowners' insurance policy. If you own a pet, particularly a dog, you should boost your liability limits. According to the Insurance Information Institute, bites by dogs accounted for more than a third of homeowners' personal liability claims in 2008, costing roughly $412 million. Depending on the state in which you live, you may be personally liable for damage committed by a guest to whom you gave alcohol. If you throw parties that include alcohol, you may consider increasing your personal liability insurance. If your property has a pool, hot tub, trampoline, or other devices that enhance accident risk, you should boost your liability insurance.

Umbrella Insurance Policies

If your net worth exceeds $300,000, the SmartMoney.com website recommends insuring your valuables with an umbrella policy in addition to your home's coverage. According to the Insurance Information Institute, umbrella insurance with $1 million in personal liability coverage costs between $150 and $300 per year. You would need to acquire both because umbrella plans take effect only after the personal liability portion of your homeowners' policy has been exhausted. The institute recommends that you carry $300,000 in personal liability coverage through your home's policy and $250,000 in auto liability coverage before determining if you require additional coverage through an umbrella policy.