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how does liability insurance work

Liability coverage is for bad things that happen to other people because of you.

It could be in an auto accident where you’ve hurt other people or it could be someone getting hurt at your home. You have insurance to pay for the actual medical expenses, lost wages, and “pain & suffering” that others experience in these situations.

Here’s a video that explains:


But your policy will only cover you up to the coverage limits that you purchase.  Often times people purchase low limits because they want to save money.  But this can actually cost you a ton more money.  WHY?  Because if you’re in a liability claim and you don’t have high enough coverage limits, YOU’RE gonna pay the rest out of your own pocket.   Tens of thousands of dollars that you wouldn’t have had to spend if your insurance policy had higher limits.

 So what kind of liability limits should you have on your insurance policies?

Let’s start with auto insurance:

Auto insurance coverage is most commonly set up as “split limit” coverage.  You should have at least 100,000/300,000/100,000 split limit coverage.  That means:

  • $100,000 of coverage per person in an auto accident,
  • $300,000 of coverage altogether for injuries in an auto accident
  • $100,000 of coverage for property damage to other people’s vehicles

That is absolutely the lowest you should ever have for coverage limits. A smarter coverage is 250,000/500,000/100,000.

What about homeowners insurance:

Your home policy has two different liability coverages:

  1. Personal Liability Coverage:  This is the big one and should be no lower than $500,000.
  2. Medical Payments: This is a smaller more accessible coverage and should be at least $5,000.
What if I want even more liability coverage?

A personal liability umbrella is a great idea for adding even more liability coverage on top of your home and auto coverage limits.  Umbrella limits start at $1,000,000 and go up from there.

So take a look at your own insurance policies and see if your coverage is up to speed.  If it’s not, make sure you call your insurance agent and get it fixed.

Need an Insurance Advisor?

contact shine insurance

or give us a buzz at 812-679-8779
Our team can break it all down for you.