Liability coverage is probably one of the most important coverages within any home insurance policy, yet it’s overlooked or downplayed by most consumers. If you are sued because of injuries or property damage someone sustains due to your action or inaction, if a court determines your negligence caused the injuries or damage, liability coverage will potentially pay the judgment up to the coverage limits. When discussing this coverage with clients, I almost always hear, “I don’t care if I get sued, I don’t have any money. You can’t get blood from a stone.” That statement could not be further from the truth, but unfortunately, it is the way many consumers look at potential lawsuits.
There are several liability coverage limits to choose from on a homeowners policy, but I always add the highest liability coverage I can so the policyholder has the maximum amount of protection available under their home policy. The difference in price from a lower or mid-range coverage to the maximum is usually minimal – often less than two movie tickets and a bag of popcorn!
Despite the obvious value there, I still have people tell me that they do not need that much liability coverage. What people fail to understand is that if you are sued for bodily injury or property damage to others, the courts will find a way to get the money you owe the other party. A judge can garnish your wages for the rest of your life, force you to liquidate your assets, and/or put a lien against your home. In some cases, this action may force you to sell your home to pay off the debt. The most common response to that is, “My home is homesteaded,” but homesteading only prevents another party from forcing you to sell your home to pay off a debt. A lien can still be placed on your home, which means if you ever decide to sell your home, the mortgage (if there is one) will be paid off first, then the lien. Only after these are paid will you receive whatever profits are left, but there is often times nothing left over and the lien is still not paid in full.
For example, you are on the golf course and smash a long drive. The ball strikes another golfer in the head, knocking him unconscious and causing permanent brain damage. This person can no longer work or function at the level he was accustomed to prior to the accident. He sues you for $1,000,000 for negligence and wins. A lien is put on your home for the $1,000,000. Five years go by and you sell your home for $300,000. The first $200,000 goes to the mortgage company to pay off your existing mortgage, then the remaining $100,000 “profit” is applied towards the $1,000,000 you owe the person you injured on the golf course. So now, you have no home, no money to show for the sale of your property, and you still owe this person $900,000. And to top it all off, a percentage of your current and future earnings are being taken out of your weekly paycheck to help pay down this debt. In order to pay off the remaining $900,000 in the next thirty years, you would have to withhold $576.92 from your weekly paycheck.
As the above example illustrates, that judgment can become a serious burden throughout your entire life. Purchasing the highest possible limit of liability is the best way to avoid a situation like this. For an added layer of protection, you can also purchase a Personal Umbrella Policy to extend coverage over your home, autos, boats, and recreational vehicles at higher limits. To learn more about the Personal Umbrella Policy, watch the video above then talk to your independent agent about how carrying one could benefit you!
The coverages described here are in the most general terms and are subject to the actual policy conditions and exclusions. For actual coverage wording, conditions, and exclusions, refer to the policy or contact your Central agent.