One of the questions clients ask us often is, “How do you know how much auto and homeowners liability protection is enough?”
Liability protection is a type of insurance designed to financially protect you if you are responsible for someone’s injuries, damages to another person’s property, or causing bodily injury to others because of an accident.
Most standard auto and homeowners insurance policies contain liability protection. Personal liability coverage only pays up to your policy’s dollar limit. If a lawsuit or judgment occurs where the sought dollar amount exceeds your current coverage, you are responsible for the difference.
For example, if your auto policy’s liability coverage limit is $250,000, and a claimant’s medical and rehabilitation bills and legal expenses to file a lawsuit tallies $400,000, you’re responsible for $150,000 out of pocket. In some cases, claimants seek greater damages and target the responsible party’s assets.
The liability protection needs of each individual or family vary, but the rule of thumb is the more assets you own, the more liability coverage you need.
Auto insurance
Most states mandate drivers carry liability insurance with a minimum of 25/50/25:
- $25,000 bodily injury protection per person
- $50,000 bodily injury protection per accident
- $25,000 in property damage
However, most states recommend 100/300/100:
- $100,000 bodily injury protection per person
- $300,000 bodily injury protection per accident
- $100,000 in property damage
Home insurance
Within a homeowners insurance policy, the liability portion protects you against lawsuits for bodily injury or property damage caused to other people and also covers court costs and damages awarded. Take inventory of your assets and the value of each because they could be on the line if you do not have the proper liability protection.
- Primary and vacation homes
- Automobiles
- Boats and recreational vehicles
- Investments
- Future earnings
- Collections, such as jewelry, art, or antiques
Example: If a person slips and falls near your pool at your home because of your negligence and is unable to return to work for several months, your assets are at risk.
Most homeowners insurance policies provide a minimum of $100,000 of liability coverage, but is that enough? The current recommendation is to have at least $300,000 to $500,000 worth of liability coverage in a homeowners insurance policy. If your primary residence or savings are worth more than that, you will need more coverage.
What’s the right amount of coverage?
Determining the right amount of liability coverage depends on your assets, your lifestyle, and your goals for the future.
What happens if the value of your assets is more than the liability coverage in your existing auto or homeowners policies?
Consider purchasing a separate excess liability or an umbrella policy. These types of insurance provide coverage beyond the standard limits of the underlying policy, and you can use them after exhausting your existing auto or homeowners coverage.
Do you run a business our of your home?
Your homeowners liability insurance may not protect you in the event of an injury or property damage related to your work. Review your policy with your insurance advisor to understand what coverage is included.
How is the cost of liability coverage determined?
The cost of liability coverage in an auto or homeowners policy, or if you add additional liability protection, is determined by the kind and amount of risk you represent. Working with a trusted advisor whose careful approach to understanding today’s complex insurance environment will help you define the appropriate amount of liability coverage you should have for your lifestyle.
Your next steps
The advisors at The Baldwin Group take the time to understand what matters most to you, then help you build a coverage plan that protects your family and the assets you’ve worked hard to build. Whether you’re revisiting your current auto and homeowners policies or exploring an umbrella policy for added protection, we’re here to help you feel confident about your coverage.
This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The content of this document is made available on an “as is” basis, without warranty of any kind. The Baldwin Insurance Group Holdings, LLC (“The Baldwin Group”), its affiliates, and subsidiaries do not guarantee that this information is, or can be relied on for, compliance with any law or regulation, assurance against preventable losses, or freedom from legal liability. This publication is not intended to be legal, underwriting, or any other type of professional advice. The Baldwin Group does not guarantee any particular outcome and makes no commitment to update any information herein or remove any items that are no longer accurate or complete. Furthermore, The Baldwin Group does not assume any liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Persons requiring advice should always consult an independent adviser.
