Liability Coverage

Liability coverage pays for injuries or property damage you cause to other people, and it covers your legal defense costs if they sue you. It is the most financially critical coverage on most insurance policies because it protects your personal assets from claims that could otherwise exceed everything you own. No matter how careful you are, accidents happen. The legal system allows injured parties to seek compensation for the full extent of their damages, and without adequate liability coverage, judgments against you come directly from your savings, home equity, and future income.

Liability appears across multiple policy types. On your auto policy, it covers accidents you cause while driving -- injuries to other drivers and passengers, and damage to their vehicles and property. On your homeowners policy, it covers incidents on your property (a guest who slips on your steps, a tree that falls on a neighbor's fence) and certain incidents away from home (your child injures another child at a park, your dog bites someone on a walk). On business policies, it covers customer injuries on your premises, damage you cause while working at a client's location, and advertising injury claims from competitors.

The most common and costly mistake people make with liability coverage is carrying too little of it. State minimums for auto liability are legal floors, not adequate protection levels. A single serious accident can produce medical costs, lost wages, and pain-and-suffering awards totaling $500,000 to $1,000,000 or more. If your auto liability limit is $50,000 and the judgment is $400,000, you personally owe $350,000. Carrying 250/500 or higher bodily injury limits and adding a personal umbrella policy for additional capacity is the most cost-effective way to genuinely protect your financial future against the risks that driving and owning property create every day.