What would happen if your dog bit someone jogging past your home? Or if your cinderblock fence collapsed onto the neighbor‘s vintage car? Or if your teenage child caused a serious car accident? Would your homeowners and auto insurance policies include sufficient personal liability protection if someone decided to sue you?

Evaluating Personal Liability and Insurance Needs

Most people are confident their homeowners and car insurance provides sufficient coverage for accidents. Yet, they’re unsure whether it adequately guards against potential lawsuits. In the rare event that you are ever sued, you could be required to pay a legal judgment from not only your current assets but also your future earnings. Even if you win the case, legal defense fees can add up quickly.

The typical homeowners and auto policies include personal liability coverage up to a certain limit. When you purchase the policies, you are able to customize many aspects of the coverage to suit your needs. A separate personal liability policy (called an umbrella policy) provides liability coverage beyond what your home and car insurance covers. The price of an umbrella policy varies by risk, but it is typically inexpensive (about a couple hundred dollars per year for a $1 million policy) because the coverage only kicks in after you’ve exhausted the liability benefits from your other policies.

One way to figure out how much personal liability insurance you need is to ask yourself how much you have to lose if you are sued. Add up the value of your home, your belongings, your financial assets and potential legal costs. Also take into account your current annual income and potential future earnings. You want to be sure a lawsuit won’t cause significant financial strain or wipe you out completely.

You may want to consult your insurance professional about modifying the personal liability limit of your existing homeowners policy and adding an umbrella policy to your insurance mix.