Liability insurance provides financial protection for the policyholder if they are sued and found legally liable for bodily injury or property damage caused to another person. It covers both the cost of defending the policyholder in court and any damages awarded – up to the policy limits. Basic liability coverage is a common type of liability insurance for individuals and businesses.
What does basic liability coverage insure?
Basic liability insurance policies cover third-party bodily injury and property damage claims that occur during the policy period, up to the limits of the policy. Here are some key details about what $100,000 basic liability coverage insures:
- Covers legal liability arising from unintentional bodily injury or property damage caused to a third party
- Typically provides a per-occurrence limit of $100,000 for third-party claims
- May provide a separate per-person bodily injury limit (often $50,000 per person)
- Covers associated legal defense costs incurred with third-party claims, within the policy limits
- Applies to incidents occurring during the policy period
Basic liability does not cover damage to the policyholder’s own property or injuries to the policyholder themselves. Separate property insurance and health insurance policies are needed for first-party coverage.
What does the $100,000 limit mean?
The $100,000 limit on basic liability coverage refers to the maximum payout the insurer will make per occurrence, or accident. Here’s what this entails:
- The insurer will pay up to $100,000 total for any single occurrence resulting in bodily injury or property damage to a third party
- If multiple third parties are injured in one occurrence, the $100,000 is shared among them
- Once the $100,000 limit is reached for one occurrence, the insurer will no longer pay damages for that incident
- The limit resets to $100,000 for the next unrelated occurrence
- Legal defense costs also count towards eroding the per-occurrence limit
Insurers may also include a per-person bodily injury limit, such as $50,000 per person. This functions similarly, capping payouts per injured person.
What types of situations are covered?
$100,000 basic liability insurance is intended to cover the policyholder’s legal responsibility for situations like:
- Injuries or property damage caused in an at-fault car accident
- Injuries to visitors, such as guests slipping and falling on your property
- Unintentional bodily injury or property damage arising from your activities and/or premises
- Damage caused by your pets to a third party
- Personal injury, such as libel, slander, false arrest, invasion of privacy
Most liability claims arise from unintentional accidents or negligence. Intentional harm caused by the policyholder is generally not covered.
What does basic liability coverage exclude?
Most basic liability insurance policies contain standard exclusions where coverage does not apply. Typical exclusions include:
- Lawsuits between insureds (e.g. family members)
- Liability arising from the insured’s business activities
- Damage to property owned by the insured
- Liability assumed under a contract or agreement
- Liability stemming from pollution, asbestos, lead, etc
- Liability arising from aircraft, auto racing, watercraft
- Intentional illegal acts
Policyholders should review exclusions carefully, as the insurer can deny a liability claim if it falls under a policy exclusion.
When is basic liability coverage required?
There are certain situations where state laws or lenders mandate a minimum level of liability insurance coverage. Common examples include:
- Auto insurance – Most states require drivers to carry a minimum amount of liability coverage, such as $25,000 per person/$50,000 per accident for bodily injury. This covers injuries to others when you are at fault in an auto accident.
- Homeowners or renters insurance – Lenders often require homeowners to carry liability coverage in amounts like $100,000 or $300,000 as a condition of the mortgage.
- Businesses – Many business types need commercial general liability coverage to cover customers’ injuries or property damage. Minimum limits may be imposed by licenses, permits, or contracts.
Even when it’s not legally required, liability insurance is crucial for protecting assets from potential lawsuits.
Who needs $100,000 in basic liability coverage?
Here are some examples of individuals and businesses that may want at least $100,000 in basic liability limits:
- Homeowners – Especially important for homeowners with swimming pools, trampolines, large dogs, or other liability risks on their property.
- Drivers – Those who frequently transport passengers should consider higher liability limits above their state minimums.
- Small business owners – Such as retailers, restaurants, professional services offices, etc. that have a higher everyday risk of liability claims.
- Independent contractors – Like electricians, plumbers, handymen, landscapers, etc. should protect against liability from their work.
- Professionals – Those who give advice like insurance agents, accountants, lawyers, or consultants may need coverage for errors and omissions.
Anyone with substantial assets to protect should also consider higher liability coverage. An umbrella policy can provide additional limits above a basic liability policy.
What are the pros and cons of $100,000 vs. $300,000 or $500,000 basic liability coverage?
Higher liability limits give more protection but also cost more in premiums. Here is a look at the trade-offs between $100,000, $300,000 and $500,000 limits:
Consider your specific liability risks, assets, and insurance costs when choosing appropriate coverage limits. An independent insurance agent can provide guidance.
How much does $100,000 in liability coverage cost?
Liability insurance rates can vary substantially based on these factors:
- Type of policy (homeowners, auto, business, etc.)
- Coverage limits and deductibles
- Your location
- Your personal details like age and claims history
- Risk characteristics of your property or business
Some example average annual premium costs for $100,000 liability coverage are:
- Auto liability – $600 to $1,200 per vehicle
- Homeowners liability – $200 to $400 as part of a homeowners policy
- Renters liability – $15 to $30 per month as part of a renters policy
- Small business liability – $600 to $2,000+ depending on business type
Get quotes from multiple insurers to find the best rates for your specific risks. Ask your agent about discounts and ways to lower your premiums.
How much coverage do you need?
Determining the appropriate liability insurance limits involves weighing several factors:
- Your net worth – The more assets you need to protect, the higher your limits should likely be.
- Laws and contracts – Check if you are subject to mandatory minimums.
- Your risks – Consider the exposures regularly faced by your lifestyle, property, vehicles, and business.
- Jury verdicts – Check average claim amounts for your location and adjust coverage accordingly.
- Premium cost – Get quotes for different limits to weigh the incremental cost.
- Coverage gaps – An umbrella policy can efficiently provide additional limits above basic liability policies.
Discuss your unique situation with your insurance agent or broker to determine appropriate liability limits. Limits of $300,000 to $500,000 are common for individuals and small businesses seeking robust coverage.
How can you lower the cost of liability insurance?
Here are some tips for reducing your liability insurance premiums:
- Raise deductibles – Choosing a higher deductible decreases rates.
- Improve home security – Things like alarm systems and adequate lighting can qualify for discounts.
- Take defensive driver courses – They can make you eligible for lower auto rates.
- Ask about discounts – Such as for safety features, multicar, good credit, etc.
- Maintain good credit – Most insurers use credit-based scores in pricing.
- Review policy options – Removing unnecessary coverages can lower cost.
- Comparison shop – Rates and discounts vary between insurance companies.
- Increase loss prevention – Risk reductions like cleaning gutters and removing trip hazards can help.
- Institute safety protocols – Documented policies and training may qualify for discounts.
Bundling different insurance policies with the same provider, and being continuously insured without gaps, can also result in discounts. Work with your agent or broker to discuss cost-saving strategies.
Can you get by with just $50,000 in liability coverage?
$50,000 is a very low amount of liability coverage today and leaves most people underinsured. Here are some drawbacks to relying solely on $50,000 limits:
- Will likely fail to meet required auto insurance minimums
- Provides inadequate protection for nearly all assets and net worth levels
- Can easily be exhausted by a single accident involving multiple injured parties
- Will not satisfy most mortgage lender requirements
- May violate contracts requiring you to carry higher liability limits
- Leaves you personally exposed when damages exceed $50,000
Carrying just $50,000 in liability coverage can put your finances at great risk. It is generally recommended to carry at least $100,000, if not $300,000 or more, in liability insurance protection.
Should you get more than the state minimum auto liability coverage?
Every state requires drivers to carry a minimum amount of liability coverage, but these minimums are often inadequate, especially if you have assets to protect. Here are some reasons to strongly consider auto liability limits above your state minimum:
- Minimums have not kept pace with rising claim costs
- State minimums may cover just one individual’s injuries from an accident
- Higher limits don’t cost much more in premiums
- You are exposed for any damages that exceed your limits
- Higher limits better protect your assets and net worth
- Umbrella policies require higher underlying auto liability limits
Most experts recommend carrying auto liability insurance with limits of at least $100,000 per person and $300,000 per accident. Buying more than the minimum coverage is wise financial protection for most drivers.
How much liability coverage should a small business have?
Recommended business liability insurance limits for small businesses often fall in the range of:
- $500,000 per occurrence
- $1 million aggregate
However, specific amounts can vary significantly based on these factors:
- Legal liability exposures of your business type
- Frequency of customer and visitor injuries
- Severity of potential injuries or property damage
- Lawsuits and claims trends in your industry
- Whether you have business assets to protect
- Contractual obligations to carry certain limits
- Recommendations from your attorney or insurance advisor
Higher risk businesses like restaurants, retailers, manufacturers, or construction companies may opt for $1 million per occurrence or more. Discuss your specific business risks with your insurance agent.
Do you need an umbrella policy?
An umbrella insurance policy provides additional liability coverage above your other underlying policies, such as auto and homeowners. Here are some signs it may be wise to purchase an umbrella policy:
- You have a high net worth to protect
- You own multiple homes
- You have teenage drivers at home
- You own rental properties
- You have expensive assets like boats or sports cars
- You regularly host guests on your property
- You have domestic employees like nannies or caregivers
- Your business has frequent customers or clients on site
Umbrellas allow efficiently increasing liability limits for relatively low cost. They generally cost just a few hundred dollars annually for millions in extra coverage. Having substantial assets is the most common reason to buy an umbrella policy.
$100,000 in basic liability insurance is a good starting point for many individuals and small businesses to protect their assets from lawsuits. However, evaluating your specific risks and net worth may reveal that higher limits in the $300,000 to $500,000 range are more prudent. Comparing quotes and speaking with an independent insurance agent can provide guidance on crafting an optimal liability insurance program at the best value cost.