What Is Personal Liability Insurance?

Personal liability insurance, also known as comprehensive personal liability (CPL) insurance, is a component of a homeowners insurance or an umbrella insurance policy that protects the policyholder and members of the policyholder’s household against claims resulting from injuries and damage to other people or their property. It prevents policyholders from having to pay large sums out-of-pocket if they are held legally responsible (liable) for something detrimental that happens to a third party. 

key takeaways

  • Personal liability insurance provides the insured party with protection against claims resulting from injuries and damage to other people or property.
  • Though typically part of a homeowners policy, personal liability insurance can also be purchased separately.
  • Umbrella insurance policies provide additional personal liability coverage, kicking in after the homeowners coverage is exhausted.

Understanding Personal Liability Insurance

Personal liability insurance is one type of a broader coverage category known as liability insurance or third-party insurance. Several varieties of liability insurance types exist, but they all have in common one crucial element: They cover not mishaps to the policyholder, but mishaps to other people that the policyholder inadvertently causes or could be held responsible for.

As the name implies, personal liability insurance, in particular, covers an individual against claims for liability arising out of bodily injury or property damage claims that are related to personal activities.

There are three ways to get personal liability coverage:

  1. It is packaged with your homeowners, renters, or dwelling insurance policy. Most personal insurance policies include this coverage, which is also called comprehensive personal liability.
  2. It is purchased as a stand-alone policy—often by individuals who do not own or rent physical property (and so don't need homeowners insurance).
  3. It is added to an existing policy—usually a personal auto or watercraft policy.

When it's part of a homeowners policy, personal liability coverage isn’t just limited to insured premises. The coverage is usually worldwide. The policy pays for bodily injury or property damage caused by an occurrence for which the coverage applies, subject to certain exclusions. Generally, the coverage extends to attorney fees, court costs, and any settlements up to the amount specified by the insurance contract.

Other types of liability insurance, such as malpractice insurance, cover claims arising from the policyholder's professional or business activities.

What Does Personal Liability Insurance Cover?

Although they rarely get to the lawsuit stage, many liability-related claims are quite commonplace. Some of the scenarios include:

  • Your dog bites a visitor to your home.
  • The mailman slips and falls in your driveway.
  • You’re found at fault for a multi-car collision on the expressway.
  • Your teenager left a lit cigarette unattended while hanging at a friend's home, starting a fire that damaged half the house.

Homeowners policies usually provide a maximum of $100,000 to $300,000 in personal liability coverage. Umbrella policies pick up where these limits leave off and provide comprehensive personal liability coverage of $1 million or more. They also cover certain liability claims that homeowners insurance may not, such as libel, slander, and invasion of privacy. Mainly, though, they're useful if your homeowners policy limits are lower than the injured party’s claim—and/or the legal expenses connected with it.

How Personal Liability Insurance Policies Work Together

Let's say your personal liability coverage under your homeowners insurance maxes out at $300,000. You also have a personal liability umbrella insurance policy that maxes out at $1 million. You’re sued for $800,000 for a covered incident and—gulp—the plaintiffs win.

You’ll first pay your homeowners insurance deductible, say $1,000. Then, your homeowners insurance will pay the next $299,000 of the judgment, which gets you to that policy’s $300,000 maximum. The umbrella policy will pay the remaining $500,000. You won’t have to come up with that half-million from your personal assets—thanks to your high amount of comprehensive personal liability coverage.