Estimated reading time: 8 minutes
Many feel that insurance is a necessary evil that the bank or the state makes them carry.
Many people ask us what we recommend for personal liability insurance?
Or how much liability do we recommend for homeowners and car insurance?
What’s enough and can you have too much insurance?
Let’s think about this.
What does Personal Liability Insurance Cover?
Personal Liability Insurance covers you against lawsuits arising from Bodily Injury or Property Damage suffered by a 3rd party as the result of your negligence.
Most of us get our Personal Liability Insurance from our Car Insurance and Home Insurance Policies.
When you are sued, and are found to be negligent, Personal Liability will pay the money damages in the judgement.
And with Personal Liability Insurance, you not only have money to pay the claim, but the insurance company provides you an attorney too!
This article will focus on protecting you from 3rd party claims arising from other people suing you.
Why carry Personal Liability Insurance at all?
It’s an unwanted expense.
And most people only think about the price and not the coverage the insurance can offer them.
When they shop for car or home insurance, they are looking for the cheapest possible coverage that makes their bank or the Department of Motor Vehicles happy.
But what if we flipped the switch and looked at it from the other vantage point?
How much insurance would you want to have if you were involved in a bad claim?
In hindsight, most people would jump at the chance to buy more insurance after a claim, but its too late.
How much Car Insurance should you carry?
The simple answer: As much as you can afford.
Let me give you an example – an everyday car insurance accident.
Our client, Suzy Q, looking to save money carries the minimum, 10,000/20,000 Bodily injury liability.
Suzy is driving home from work one day and is distracted for a moment because she hears a text notification and looks down at her phone.
Unfortunately, at that moment, traffic comes to a stop and she slams into the car in front of her. She and the other driver pull to the side of the road.
The police arrive to complete an accident report. Although he notes that she is at fault, the cop is nice and does not give Suzy a ticket. She has got a little damage to her front end and the other guy has what looks like minor damage to the rear end of his car.
She reports the accident to her company, and they arrange to repair her damage at a local dealership.
The next week, Suzy receives a letter from an attorney that asks her to disclose all her insurance policies and ALL OF HER FINANCIAL ASSETS.
She calls her company and asks if she must disclose her assets including bank accounts and equity in her home. The other party was not hurt at the scene and never mentioned any injury.
Her claims adjuster tells her that, according to State law, she needs to comply.
But not to worry, they will probably settle for the $10.000 Bodily Injury liability in her policy.
3 months later, she gets another phone call from her claims adjuster advising that they are willing to pay the policy limits, but the other party is demanding $10,000 more to settle the claim.
The claims adjuster strongly recommends that she pay the extra $10,000 out of pocket because “if you go to court, there’s no telling what a jury might award the other party.” Suzy pays the $10,000 out of her own pocket and settles the claim to avoid a jury trial.
If you told Suzy during this claim process, that she could pay $300 and change her Bodily Injury limits to 100,000/300,000, she would do it in a heartbeat. Unfortunately, that is not how it works.
Here is what we at Cronin Insurance recommend for Florida Car Insurance:
- Bodily Injury Liability $250,000/500,000
- Property Damage Liability $100,000
- Personal Injury Protection: $10,000 with no deductible
- Uninsured Motorist: $250,000/500,000 Stacked.
- Personal Liability Umbrella for at least $1,000,000 over Car and Home Insurance and endorsed for Uninsured Motorist.
As far as Comp and Collision goes, we recommend that you carry low deductibles if you cannot afford large ones. For instance, if you can’t afford $1000 deductible before you can fix your car, make sure you choose a $250 or $500. It will cost a little more, but you will be glad at claim time.
Same goes for Rental and Towing coverage. For about $25 every six months you can buy both and be glad if you need a car after an accident or must be towed when your car breaks down.
How much Home Insurance liability should you carry?
Simple answer: As much as the Insurance Company will let you buy.
After making sure that you are covering your dwelling for 100% of the cost to rebuild, checking Other Structures, and checking you have enough Personal Property coverage, buy as much Personal Liability Insurance as you can.
The Personal Liability coverage provided by Home Insurance is very inexpensive, but in today’s world, you need to recognize limitations on the policy too.
For example, to increase your Liability coverage from $100,000 to $300,000 only costs around $20.
That’s why we recommend buying the most Personal Liability coverage the company will offer you.
It’s also a good idea to endorse the liability for Personal Injury (libel and slander).
Why is Personal Liability on your Home Policy so much cheaper than your Car Policy?
The reason Homeowners Insurance Personal Liability cost is so much cheaper than your Car Insurance is that homes are stationery.
They are not moving around seeking victims like when you drive your car. (only kidding, you don’t mean to hit anyone.)
So, the frequency of 3rd party lawsuits against Home Insurance policies is much lower than Car Insurance policies.
For the most part, you can control who is on your property so there’s less chance of a stranger getting hurt.
It doesn’t mean it can’t happen though. Think of this scenario, from real life.
A family goes away for a week on Summer vacation. They lock up the house, pack into the car and away they go.
While they are away, some neighborhood kids decide that their house would be a great place to hold a pool party.
They find a loose screen, unlock the screen door, and pile onto the patio to party around the pool.
While horsing around, one of the kids dives into the pool and suffers head and neck injuries- injuries that will require years of rehab.
What’s crazy is the family knows the kid and his family and feels bad about the injury but upset because of the lawsuit.
If you told the family that for $20, they could have had $300,000 instead of $100,000 to help this kid’s rehab, they would never hesitate.
I’ll bet if you told them for $400, they could have a $1,000,000 in Umbrella liability, they would buy that too!
Do not wait till it’s too late, buy as much Liability coverage on your Home Insurance policy as you can.
How does a Personal Liability Umbrella work?
A Personal Liability Umbrella places a layer of additional Liability protection above your Car and Home Insurance policies.
If legal judgements against you exceed the limits you carry on your policies, the Umbrella policy will respond to pay the judgement.
For example, you are at fault in a very bad car accident and the jury awards $950,000 to the plaintiff.
If you carry $250,000 Bodily Injury liability on your Car policy, then your Car insurance will pay the plaintiff $250,000, which leaves you short for about $700,000.
This is where the Personal Liability Umbrella comes in. Your Umbrella will pay the extra $700,000!
And for most households, without tickets, accidents and young drivers, Umbrellas cost less than a cup of coffee a day.
So why doesn’t everyone have an Umbrella?
Because, in order to qualify to buy an Umbrella, you need to carry adequate underlying limits on your car and home policies.
And in today’s world, most company require limits of at least $250,000/$500,000 Bodily Injury liability and $100,000 Property Damage liability on your Car policy, and at least $300,000 on your Home Insurance.
(With Home insurance companies like Citizens, who only offer $100,000 of liability, you would need to buy a $200,000 Excess liability policy which cost a couple hundred dollars or so a year).
What we recommend for Liability Coverage
Here’s our recommendations for Personal Liability Insurance:
Car Insurance: $250,000/500/000/100,000 for BI/PD liability and $250,000/500,000 Stacked Uninsured Motorist Coverage.
This amount gives you excellent limits in 99% of lawsuits arising out of Car Accidents. It also qualifies you to buy a $1,000,000 or more in Umbrella coverage.
If $250/500 costs too much, try to buy $100,000/300,000 or even $25,000/50,000 if that’s too expensive. The more liability the better.
Although Uninsured Motorist does not protect you from Lawsuits, it gives you a way to collect from your own policy, that which you could not get from the other party who causes injuries to you or your family in a car accident.
Home Insurance : At least $300,000, but more if they offer it. It’s cheap and it also qualifies you for the Umbrella.
If you have a company that only offers $100,000, ask us about an Excess Liability policy that we can layer between your Home Insurance and your Umbrella.
Personal Liability Umbrella : For the price of a cup of coffee a day, buy yourself a $1,000,000 or more Umbrella. And endorse it for Uninsured Motorist too. This gives you excellent coverage in the event of a lawsuit and gives you $1,000,000 benefit if you are injured by an Uninsured driver or one who does not carry enough Liability to pay for your injuries.
Bottom Line: How much Personal Liability Insurance do we recommend? As much as you can afford. It’s relatively inexpensive and when the time comes when you are sued, you will want as much as you can get.
As always, if you have any questions about Personal Liability, what it covers and how much it costs, contact the independent agents at Cronin Insurance Agency.
Low rates, choice of companies, and personal advice,
Cronin Insurance is the Wise Choice.
