How to Increase Your Liability Coverage in Home Policies

Increasing your liability coverage in a homeowner’s policy is a critical step in protecting your financial assets from a potentially devastating lawsuit. Standard homeowner’s policies typically come with a default liability limit of $100,000 or $300,000, which may not be enough to cover the high costs of a severe injury or property damage claim. The good news is that there are several straightforward ways to increase your liability coverage to a level that provides a more robust financial shield.

The most direct way to increase your liability coverage is to raise the limits on your existing homeowner’s policy. Most insurance companies offer the option to increase the per-occurrence limit on the policy for a relatively small increase in the annual premium. You can typically raise the limit to $500,000 or even $1 million. This is a simple and cost-effective way to get a higher level of protection without having to purchase a separate policy.

However, for a higher level of protection, the best option is to purchase a separate umbrella liability policy. An umbrella policy is a stand-alone policy that provides an additional layer of liability coverage on top of your existing homeowner’s and auto insurance policies. It “sits” on top of these primary policies and only kicks in after the underlying policy’s limits have been exhausted. For example, if you have a homeowner’s policy with a $500,000 liability limit and a $1 million umbrella policy, the umbrella policy will cover any damages between $500,000 and $1.5 million. Umbrella policies are very affordable for the amount of coverage they provide, and they are the best way to get a high level of protection, typically from $1 million to $5 million or more.

When considering an umbrella policy, you will also need to meet the underlying liability limits required by the umbrella insurer. This means you may have to increase the liability limits on your homeowner’s and auto policies to a certain amount (e.g., $300,000 or $500,000) before you can purchase the umbrella policy.

The amount of liability coverage you need is a personal decision that depends on your assets and your risk tolerance. A good rule of thumb is to have enough liability coverage to protect all of your assets, including your home, savings, and investments. A lawsuit can result in a judgment that seizes these assets, and an umbrella policy is the best way to protect them. To increase your liability coverage, you should speak with your insurance agent or broker. They can help you determine the right level of coverage for your situation and can provide quotes for both raising your existing limits and for purchasing an umbrella policy.