Getting Blood From A Stone: Why Liability Coverage is So Important
Liability coverage is probably the most important coverage on any home insurance policy, yet is overlooked or downplayed by most consumers. If you are sued because of injuries or property damage someone sustains due to your negligence, this is the coverage that will pay the judgment that may be set against you by the courts. When discussing this coverage with clients, I almost always hear “I don’t care if I get sued, I don’t have any money. You can’t get blood from a stone.” That statement could not be further from the truth but, unfortunately, it is the way many consumers look at potential lawsuits.
There are a few liability coverage limits to choose from which are $100,000, $300,000, $500,000, or $1,000,000. I always add $1,000,000 in liability coverage to a homeowner’s policy so that the person purchasing the policy has the maximum amount of protection available under their home policy. The difference in price between $500,000 and $1,000,000 is approximately $24 per year. That is less than two movie tickets and a bag of popcorn. For that money you have doubled the amount of protection you have if you are sued. Despite the obvious value there, I still have people tell me that they do not need that much liability coverage. What people fail to understand is that if you are sued for bodily injury or property damage to others then the courts will find a way to get the money you owe the other party. A judge can garnish your wages for the rest of your life, force you to liquidate your assets, and/or put a lien against your home. In some cases this action may force you to sell your home to pay off the debt. The most common response to that is “My home is homesteaded.” Homesteading only prevents another party from forcing you to sell your home to pay off a debt. A lien can still be placed on your home, which means that if you ever decide you want to sell your home then the mortgage (if there is one) will be paid off first, then the lien, and you are left with whatever profit is left over. Often times there is nothing left over, and the lien is still not paid in full.
For example, you are on the golf course and smash a long drive. The ball strikes another golfer in the head, knocking him unconscious and causing permanent brain damage. This person can no longer work or function at the level he was accustomed to prior to the accident. He then sues you for $1,000,000 for negligence. He wins the case and a lien is put on your home for $1,000,000. Five years go by and you decide you want to sell your home. You have a mortgage for $200,000 and your home sells for $300,000. The first $200,000 goes to the mortgage company, and then the remaining $100,000 “profit” is applied towards the $1,000,000 that you owe the person you injured on the golf course. So now you have no home, no money to show for the sale of your property, and you still owe this person $900,000. And to top it all off, a percentage of your current and future earnings are being taken out of your weekly paycheck to help pay down this debt. In order to pay off this remaining $900,000 in the next thirty years, you would have to have $576.92 withheld from your weekly paycheck.
As the above example illustrates, that settlement can become a serious burden throughout your entire life. Purchasing the highest possible limit of liability is the best way to avoid a situation like this. You can also purchase a personal umbrella policy as well to extend over your home, autos, boats, and recreational vehicles. That, however, is a blog for another day.