Is 500k liability enough?

Question

Having a hard time finding a policy that covers sump/water backup, but I found one at an okay price. The only problem is the liability coverage is max at 500k. I'm buying with a LP/Corp structure, not a LLC. Unsure if this would change anything. This is the first property that I own. I'm from Canada. Is this enough coverage?

Jeff Copeland · Answer

In the US, it's typical for your homeowner's policy liability coverage to max out at $300-500k. Additional coverage (usually up to $1M or $2M) is often provided by an umbrella liability policy.

Note that liability coverage protects you against personal injury or wrongful death occurring at one of your properties, and these types of claims (though somewhat rare) often exceed $500k if/when they happen.

Bill B. · Answer

Not if your insurance is more than your net worth, they’d take a check from the insurance company for $500k before they’d take $300k worth of your stuff.

Bud Gaffney · Answer

@Gurjot Grewal it really depends on what your individual circumstance.

Bill B. · Answer

Yup.

Ps. This is all liability. You are more likely to use “replacement cost” to replace a burned down/blown up property. Make sure it’s not diminished value, or market value. Almost no home can be rebuilt for its market value.

Nathan Gesner · Answer

Here's a little test that I've tried many times over my 13 years on BiggerPockets: ask everyone to tell you how much they've been sued for and see if you can find even one individual that lost more than their insurance would cover. I haven't found one yet.

Most Landlords will never experience more than a dispute over the security deposit. Even if you were sued for something larger, what are the odds you would lose? Even if you did lose, what are the odds you would lose more than insurance would cover?

The majority of disputes are over deposits. The majority of big disputes are dismissed or settled out of court. The majority of those that end up in court are dismissed or paid by insurance.

The odds of you being successfully sued for more than your insurance would cover? Astronomical.

Gurjot Grewal · Answer

@Bill Brandt this makes alot of sense thank you. I'd estimate my networth to be around 250-300k atm. So 500k for now should be okay.

Bill B. · Answer

If you are sued, they can go after the insurance or your net worth. That stopped me for a long time from getting an umbrella. Why get a $2mil umbrella if I could get sued for $10m, my insurance plus my stuff? It was explained to me that they could go after one or the other.

So if you have $4mil net worth and $1mil insurance they’d sue you and get your $4m in stuff, you’d be left with your $1mil from insurance. If you have $1mill insurance and only $500m stuff, of course they take the insurance.

Plus, you have an insurance company’s lawyers fighting to keep their million, that might save you just in lawyers fees if you were obviously (to you) not responsible.

If you’re worth $500k, sometime in the next year or two, assuming things continue to go well, I’d get the $1m umbrella. Or if you can find an umbrella that only requires $300k on property you might save money with lower property limit and umbrella.

Carlos Ptriawan · Answer

Rather than approaching the house from insurance/legal claim perspective, why in the world you don't just do sewer/plumbing checking/cleaning/inspection ? What does the property inspection say about the plumbing?

Jay Thomas · Answer

I understand that you're having a hard time finding an insurance policy that covers sump/water backup, but you've found one at an okay price. However, you're concerned that the liability coverage is maxed out at 500k, and you're unsure if this is enough coverage since you're buying with an LP/Corp structure and not an LLC.

First, it's important to note that liability coverage is a crucial aspect of any insurance policy, as it can protect you from financial losses in the event of property damage or injury caused by your property. While the amount of coverage needed can vary based on your specific situation, it's generally recommended to have liability coverage of at least $1 million.

Is 500k liability enough?

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