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 you and members of the your household against claims resulting from injuries and damage to other people or their property. It prevents you from having to pay large sums out of pocket if you are held legally responsible (liable) for something detrimental that happens to a third party.
- Personal liability insurance provides you 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 your 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 exist, but they all have in common one crucial element: They cover not mishaps to you but mishaps to other people that you inadvertently cause or could be held responsible for.
As the name implies, personal liability insurance covers an individual against claims for liability arising out of bodily injury or property damage that are related to personal activities.
There are three ways to get personal liability coverage:
- It is packaged with your homeowners, renter's, or dwelling insurance policy. Most personal insurance policies include this coverage, which is also called "comprehensive personal liability."
- 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).
- 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 can extend to incidents that happen elsewhere. 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 your 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 mail carrier slips and falls in your driveway
- You're found at fault for a multicar 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 malicious prosecution. 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. (For related reading, see The 6 Best Umbrella Insurance Companies.)