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Third-party liability coverage is the portion of an insurance policy that protects you if you’re sued (or threatened to be sued) for a physical injury or damage to someone else’s property. Also referred to as “legal liability coverage,” this section of your home or car insurance policy is set up to cover things like legal fees, the amount of money you have to pay to settle a lawsuit, and other related expenses.

So, how does liability coverage work in real life? And why is it so important? We’ve got the answers to these questions and more.

How does third-party liability coverage work?

Here are a few examples of real-world scenarios that could be covered by the third-party liability section of your home or car insurance policy:

Home insurance liability coverage

You’re cutting down a tree in your yard and it accidentally falls on your neighbour or their car.

You’re golfing in Florida and drive your rental golf cart into another golfer or their expensive clubs.

On a family fishing trip, your son steers your boat into someone who is waterskiing nearby, injuring the person and damaging their boat, too.
 

Auto insurance liability coverage

You hit a patch of black ice while pulling into your driveway and hit a pedestrian or knock over your neighbour’s fence with your car.

You’re backing out of your friend’s driveway and accidentally back over their kid’s expensive bike.

You run a red light and hit another vehicle, injuring the other driver and their passengers.
 

Bonus tip: Did you know that the liability coverage included in your home insurance policy tags along with you, no matter where in the world you are? Learn more about how liability coverage can protect you at home and abroad.

Why is third-party liability coverage so important?

Accidents happen, even when you take all the right steps to prevent them — and accidents often result in lawsuits that can have serious financial consequences. All of the scenarios we’ve listed in this post are examples of times when you could be held legally responsible for injuries or damage to other peoples’ property. Lawsuits can be expensive, but liability coverage ensures you won’t get stuck paying out of your own pocket when the unexpected happens.

Lawsuits can be expensive, but liability coverage ensures you won’t get stuck paying out of your own pocket when the unexpected happens.

Can renters get third-party liability coverage?

Yes. Most tenant insurance policies include third-party liability coverage, in addition to protecting your stuff. Review your policy or ask your group’s broker to confirm if your policy includes liability coverage. If you’re a renter and you don’t already have tenant insurance, contact your group’s broker to learn about your options.

If I have liability coverage in my home or tenant insurance policy, does it cover me when I’m driving, too?

No. When you’re operating a vehicle, liability for injuries or damage to other peoples’ property is not covered by your home or tenant insurance policy — so you’ll need to carry enough liability coverage on your car insurance policy to protect you in case of a driving-related mishap.

How much liability coverage should I have?

You should buy enough liability coverage to protect your financial security. Once a claim opens a pop-up with definition of claim has exceeded the limit in your policy, you’ll be responsible for paying the remaining balance — which, depending on the severity of the situation, could lead to financial trouble or even bankruptcy. The more liability coverage you have, the less you’ll have to pay out of pocket if you’re involved in a lawsuit. Here are a few tips to consider when deciding on your liability limits:

Home insurance liability coverage
  • Many home insurance companies require you to have a liability limit of at least $1 million. While this may be enough to cover most typical liability claims, many claims do exceed $1 million, especially when there are long-term injuries involved.
  • Consider a higher limit if you have a swimming pool, a swing set, or pets.
  • If you have a home-based business that’s insured through an endorsement on your home insurance policy, discuss with your group’s broker to make sure your liability limit is high enough to protect yourself and your business.
Auto insurance liability coverage

Increasing the liability limit on your car or home insurance policy may cost less than you think, so it’s worth contacting your group’s broker to find out how much it would cost to take your coverage to the next level.

What if I need extra liability coverage?

If you have a lot of assets to protect, you might need more liability coverage than what’s included in your home and car insurance policies. An umbrella insurance policy allows you to extend your third-party liability coverage beyond your current limits. Contact your group’s licensed broker to find out if an umbrella policy is right for you.

What if I don’t get sued but I’m still responsible for an injury or damage to someone else’s stuff?

While it’s not technically “liability coverage,” your home insurance policy may include coverage for voluntary payment when you’re responsible for an injury or damage to someone else’s property but not being sued. For example, if you borrow your friend’s designer gown and accidentally stain it with red wine, you can volunteer to replace it; or if you hit your buddy in the teeth when you’re playing road hockey, you can volunteer to cover his dental bills — and your insurance company can cover the cost. Ask your group’s broker for more details about coverage for voluntary payment for medical expenses or damage to property.


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