Tuesday, February 8, 2011

What is Liability Insurance, and why is it so important?

Liability insurance provides protection from claims that arise when you are responsible for causing bodily injury to someone else or damaging someone else’s property. Basically, this insurance pays when you are “liable” for injury or damages. Liability is an essential part of both a property policy (home, condo or renter’s insurance), as well as an auto insurance policy.

Ok, now that you have the dictionary definition, what does it REALLY mean, and how does it pertain to you and your life? Here are some “real life” examples to ponder:

  • Say you were hosting a party at your home and someone fell down the steps and broke their leg. The injured party would most likely present a claim against you to be compensated for their medical bills and “pain and suffering”.
  • What if you owned a condo or were renting an apartment and accidentally started a fire which caused damage to the adjoining units? The neighboring units could present a claim against your policy to have their damages paid.
  • Driving down the road one night, you hit a patch of black ice and slide into the car in front of you. The car that was struck could go after you for not only the damage that was done to their vehicle, but also for any injury sustained.

It is important to carry liability limits on your policies which are high enough to protect your assets. In the event of a catastrophic liability claim (i.e. you struck and killed a pedestrian while driving your car), you can be sued. In the event of a lawsuit, the courts will first exhaust the limits on your insurance policies, but for any damages over and above those limits (or if you don’t have any liability insurance in place) they will go after you personally.

People mistakenly think they do not need renter’s insurance or condo insurance. Even if you feel that your personal property is not worth much, it is worth purchasing this insurance for the liability protection alone. A very basic renter’s or condo insurance policy costs around $200-$300 per year.

People underestimate the importance of liability and think “It will never happen to me.” Hopefully “it” won’t ever happen to you. But, in the event that it does, it’s worth spending a few extra dollars to make sure that you, your family and your financial future are appropriately protected.

No comments: