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How Personal Liability Insurance and Dwelling Insurance Work Together

You could find yourself on the hook for expensive medical, legal, and repair bills if someone injured themselves on your property or if you damaged their property. Your home insurance policy’s personal liability coverage, also known as Coverage E, offers financial protection against accidents on your property and injuries or damages caused by your negligence.

Liability coverage works with dwelling and other structures coverage to offer comprehensive protection against various potential issues. Make sure you understand how each work independently and together to best protect your home and family.

Liability Insurance and Dwelling Insurance Working Together

Dwelling insurance coverage helps pay for losses from a covered peril. A peril is an event that causes damage, such as a major storm, fire, robbery, or vandalism. Dwelling insurance covers the home’s structure, including the walls, roof, and rooms.

The personal liability insurance portion of your homeowners insurance policy covers injuries on your property. It also covers some injuries you may cause even when away from your home, and damages you cause to someone else’s property.

In some cases, the two coverages may need to work together. For example, suppose a visitor is injured at your home because a bad windstorm knocked the power out. In this case, you could use your personal liability coverage to help pay for the guest’s medical treatment and your dwelling coverage to help pay for repairs to your home from the storm.

While this may seem far-fetched, the scenario could become more common than you may think. In 2021 alone, there were 21 named storms and 52,729 wildfires in the United States, making these types of natural disasters a peril that homeowners cannot afford to ignore. 

What Does Personal Liability Insurance Cover?

Personal liability insurance can offer coverage for a variety of scenarios, including (but not limited to) the following:

  • Injuries you cause: You are clearly responsible for the accidental injury in these cases. Examples include if your firearm goes off while you are cleaning it and injures a guest or a neighbor, or if you accidentally push a friend and they break their arm in the fall.
  • Injuries on your property: Even if you did not directly cause the injury, you could be responsible if it occurred on your property. Examples include if your child’s friend falls on the trampoline in your yard or if a delivery person slips on your icy walkway.
  • Injuries caused by your pet or your child: You are responsible for your pets and children, even if the damage occurs off your property. Examples include if your child accidentally hits a baseball through a neighbor’s window or if your dog bites a passerby.
  • Damage on your property that affects another person’s home: If your property damages the adjoining property, you will be responsible. Examples include if your tree falls onto your neighbor’s house or if a fire spreads from your home to theirs.

Insurance companies typically only pay if there is proof that your negligence caused the accident, injury, or property damage. Otherwise, the claim may be denied.

While personal liability insurance can cover medical expenses for guests, neighbors, and other individuals, it is not a substitute for health insurance. It does not cover injuries to you or others who live in your household.

What Doesn’t Personal Liability Insurance Cover?

While your personal liability homeowners insurance covers various claim types, some claims are typically not covered. This includes (but is not limited to) the following:

  • Injuries to you or someone living in your home because these are typically covered by your health insurance
  • Claims resulting from a car accident because these are typically covered by your auto insurance
  • Property damage or injuries related to business activities because these are typically covered under a business insurance policy
  • Accidents where negligence cannot be proven
  • Worker’s compensation
  • Malpractice lawsuits
  • Intentional acts of violence by you or a family member

Your insurance policy may also specifically exclude coverage for some incidents. For example, suppose you own a dog breed that is categorized as dangerous. In that case, your insurer may not cover any injuries or damage your dog causes. In this case, you may need to purchase a separate animal liability insurance policy.

What Does Dwelling Insurance Cover?

The dwelling insurance coverage included in your homeowners insurance policy helps pay for damage to your home’s roof, interior and exterior walls, foundation, and permanently attached structures, such as a garage or deck. Generally, dwelling insurance covers damage caused by:

  • Explosions
  • Falling objects
  • Fire and smoke
  • Lightning strikes
  • Hail
  • Wind
  • Theft
  • Vandalism
  • Volcanic eruption
  • Weight of snow, ice, or sleet
  • Water from an HVAC system malfunction or appliance overflow
  • Frozen plumbing, sprinkler system, heat ducts, or appliances

Other parts of your insurance policy can also cover other types of perils. For example, Other Structures Coverage can protect structures not attached to your house, such as swimming pools, playground equipment, or a detached garage or shed. 

Likewise, Personal Property Coverage protects your possessions, such as furniture, clothing, electronics, and other items. Since these are separate coverages, they may each have their own limits and deductibles.

What Doesn’t Dwelling Insurance Cover?

Dwelling insurance only covers some types of damage. For example, many policies do not provide coverage for damage caused by:

  • Floods
  • Earthquakes
  • Sewer backups
  • Sinkholes
  • Mudslides
  • Pest damage (e.g., termites)
  • Lack of maintenance

If you live in an area that is prone to certain disasters, you could purchase endorsements or stand-alone policies for those perils. For example, residents in areas prone to flooding may consider flood insurance.

While comparing policies, consider the difference between named peril and open peril policies. A named peril policy only offers coverages for the perils listed in the policy, while an open peril policy covers any perils that have not explicitly been excluded. Open peril coverage can be more expensive, but it offers more comprehensive coverage.

How Much Coverage Do You Need?

While each household is different, there are some guidelines you can follow for determining how much coverage your policy should have.

Personal Liability Coverage

Many standard homeowners insurance policies include $100,000 to $500,000 in personal liability coverage. To determine the coverage you need, consider your future earnings, whether you have multiple residences, and whether you have children who may create a higher risk for damages.

A plaintiff can go after your assets once your liability insurance is exhausted. For this reason, you generally want to have enough liability insurance to cover the total value of your financial assets, including your homes, vehicles, savings, and retirement funds.

Some insurers may permit you to increase the personal liability limits in your homeowners policy. However, purchasing an umbrella policy may be the best way to increase the amount. Umbrella policies provide additional coverage above the limits of your other insurance policies.

Dwelling Coverage

Many homeowners insurance policies require enough dwelling insurance to cover at least 80% of your home’s replacement value. Some insurers may allow you to choose between actual cash value or replacement cost coverage.

Replacement cost covers the full replacement cost without any depreciation. On the other hand, actual cash value coverage factors in depreciation to offset the home’s normal wear and tear, resulting in less compensation if you have a claim.

Consider consulting with a local real estate agent or building contractor to find out how much it would cost to rebuild your home. This could help you determine how much dwelling coverage you need. You may be able to purchase a rider that offers additional coverage if your standard policy does not offer enough.

Other coverages for property damage

When determining how much personal property insurance you need, start by considering the approximate value of your personal assets, including furniture, electronics, and appliances. Conducting a thorough home inventory can help you get an accurate estimate. 

Many standard homeowners insurance policies offer personal property coverage of 50% to 70% of the insurance coverage on the structure. If you need more, you may be able to increase your limits or add a personal property endorsement to your policy.

Standard policies also typically cover other non-attached structures up to a limit of 10% of your policy’s dwelling coverage. If the value of your structures is higher, talk to your insurer about increasing your coverage limits.