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Liability Coverage for Homeowners and Renters

We often think of home insurance as protection for our home itself and for our belongings. While both coverages are key parts of a home insurance policy, liability insurance is one of the most important parts of a home insurance or renter insurance policy, and a part that often does not get the attention it deserves.

What is liability insurance?

It is helpful to think of liability insurance as coverage for other people. In effect, your liability insurance helps pay for injuries to others or damage to the property of others caused by someone covered under your policy. However, home and renters’ insurance policies limit coverage based on how the loss occurred. For example, a home insurance policy specifically excludes liability that results from auto accidents. To cover your liability due to auto accidents, you need a separate auto insurance policy. Liability related to business activity or professional activity is also excluded from standard home insurance policies.

Instead, home insurance liability coverage addresses many types of personal liability, such as dog bites, slip and fall accidents, or accidental damage to the property of others. A baseball hit through a neighbour’s window would be an example of accidental damage to the property of others, but this type of mishap can usually be worked out in a neighbourly way. More costly examples might include damage to the neighbour’s car or fence, both of which may be a loss where you might consider using your liability coverage. Another example might be if someone got hurt at your home during a backyard cookout.

Dog bites are among the most common types of liability insurance claims and the average claim reaches into the tens of thousands of dollars. Liability is difficult to predict and can come from any of a large number of risks. Many times, we do not see a potential risk until it is too late to stop an accident or an injury from happening. Your liability insurance can help protect against the unexpected.

Choosing liability coverage limits

Discuss your coverage needs with your advisor. One common assumption is that you will need more coverage if you are a homeowner. While it is true that your home is an asset at risk without proper coverage, a renter or someone with an inexpensive home does not really have less liability risk. Potential losses are not limited by the value of your assets or the contents of your savings account. Instead, consider coverage limits that match the risks your household faces.





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