Liability Coverage

Liability Insurance -

What is liability? The dictionary defines as follows:

liability (n.) -

1. The state of being liable.
2. Something for which one is liable; an obligation, responsibility, or debt.
3. liabilities - The financial obligations entered in the balance sheet of a business enterprise.
4. Something that holds one back; a handicap.
5. Likelihood.

Well, now, that was helpful, wasn't it? Let's try "liable":

liable (adj.) -

1. Legally obligated; responsible: liable for military service.
2. At risk of or subject to experiencing or suffering something unpleasant. Used with to: liable to criminal charges; liable to diabetes.
3. Likely. Often used with reference to an unfavorable outcome: In a depression banks are liable to fail.

So, liability is the "state of being legally obligated or responsible". That helps, with regard to understanding liability insurance. This is insurance against the situation where you are personally held as responsible for a loss or injury of some sort. An example might be: a visitor to your home steps off the front porch onto the steps, but the step gives way under his weight. This causes your visitor to fall and break his arm. As the owner of the property, you are liable for your visitor's injury, and responsible to make him whole again.

Typically, liability insurance is simply a part of your homeowner's insurance policy. In some cases, the level of coverage is too low with a standard policy, though, and a larger liability policy is purchased. These policies are called "umbrella liability" policies, because they cover your liabilities beyond those covered in your homeowner's policy. Umbrella liability policies are especially popular for small business owners and other folks who have substantial assets that could be lost to liability litigation, or who may have significant exposure to liabilities.

In general, having an umbrella liability policy is a good idea in today's litigious society. It doesn't take long for damages from a lost lawsuit to get up to a million dollars or more, so if you're at all exposed to liabilities and are concerned about someone suing you for all you've got, a one million dollar umbrella policy is pretty cheap peace of mind.

Next time, we'll discuss homeowners policies. This won't be an exhaustive review of HO policies, that's what your State Farm or Allstate agent is for.

Until then -

jb