What are your liability limits on your SFR insurance policies?

Question

Hey everyone,

I'm just curious as to what amount of liability insurance coverage most people have on their SFR's?

My insurance agent wrote up a policy for $500,000 of liability coverage plus $1,000 medical bill liability and I'm just curious if this is close to what other people carry.

I got a quote from another company who quoted $1 mill in liability coverage however their monthly premium was quite a bit higher.

Note: This property will not be held in an LLC because after weighing the pros and cons and taking into consideration my current situation, I felt it wasn't needed and would only complicate things.

Thanks!

Donald Stevens · Answer

I think we have to agree to disagree. That's what makes this country and even this forum great. Everyone has a different opinion and hopefully it helps people make the best decision for them. Thanks Bill.

Bill Gulley · Answer

You almost sound like an insurance agent, LOL

The only part I agree with that you mentioned is to see your attorney and that values may be different in different jurisdictions.

I'd say the only ones on this site that can evaluate similar cases would be attorneys, certainly no layperson can make such an evaluation.

When I had my insurance brokerage I also did finance work and estate planning with an attorney (who later became a judge) I did valuations for him for loss of work, loss of an eye, arm, leg which are pretty well statistically set, not wild determinations.

As I said, costs of defense are insured, the attorney gets paid.

If you are exposed to 50M in losses, insure for 60M.

If you are under insured, you have a loss and your assets, like you said could be liquidated, but not all your assets, some assets are protected in BK. A BK may not wipe out your judgment depends on what it is. If you are criminally liable that may be a different issue. You fail to secure a gas line and kill 18 people in the area, that can be much different than Nelly slipping and falling.

Indemnification is "making one whole" to be indemnified you must suffer a financial loss, this is more to casualty insurance not liability as you don't have a financial loss but a claim and that is defended whether or not you ultimately incur a judgment against you.

It's pretty much as I stated above. If you think your assets or NW has something to do with your risk exposure, besides how you may be perceived, by all means buy on that basis and see how things work out with your 200K NW and a house blowing up.

Liability insurance transfers risk from you to the insurance company, that is the purpose of insurance, to transfer and assume risk. The risk of suffering from any peril has nothing to do with your assets. It has everything to do with your exposure to risk. :)   .

Donald Stevens · Answer

Bill the reason net worth is important is because attorneys want to get paid. If your net worth is 200k and they sue you for 1.5M there is a high chance the person being sued will file bankruptcy in which case the court will liquidate assets and pay out the net worth. The court wants the person who was injured to be made whole and it is not common for courts to award 50M settlements when a person has 500k in net worth. You are correct in saying you can be sued for any amount but they cannot collect what you don't have. Based on your assessment I'm not sure how to value the coverage needed because your idea leads to the thought that a person needs an infinite policy to be fully protected. Because based on what you are saying you can be sued for an infinite amount. Norms don't mean anything because each case stands on its own merits.

Now different states do have different laws and possibly restrictions on the amount a claim can be valued for a particular kind of suit. You can also look at court documents to see how your courts are valuing different types of claims being made. The main point of insurance is to protect your assets and make you whole. Your best advice I believe and I would agree is to always consult an attorney when you are assessing your risk.

Bill Gulley · Answer

Again, all kinds of misconceptions.

I understand the question being asked, but you won't get a right answer for you, generally, in most places, the 1M 2M limits will cover most anything.

Your net worth is relevant yet irrelevant. If you're known to have resources then an attorney may take a case against you and proceed. Usually an attorney will need to file suit to be able to find out what coverage you may have. So, what coverage you carry should be held confidentially, telling the world what your coverage is is like holding up a sign saying sue me, "I'm good for it".

Your coverage is to the types of exposure you have, the chances of loss and size of losses for different events can be very different from one area to another. Your coverage defends you against claims. If you are likely to be found liable in a case where an average jury in that area hands out 1.25M in judgments and you're looking on the risky high side to defend, your insurance company can cut you a check and walk away, actually they don't give you the money, they can post it to be paid toward the loss. That leaves you high and dry defending yourself. No insurance company takes on cases where they spend hundreds of thousands of dollars in defense knowing they will likely lose. Your assets can then be at risk, to defend a suit and pay any amounts of a loss above your covered limit. This is why setting higher limits is important, it keeps the insurance company in the game to the end.

So your coverage should begin with your agent, your attorney can answer the quick question as well, seek advice from both. Attorneys will generally give you a few free moments on this topic as it can be the source of them being paid in a matter. The same case in New York can be a much different amount at risk than in New Mexico. Your attorney will know what is customary in your area.

Your assets are irrelevant in that if you can't pay the judgment it will follow you until it is paid, that can mean years of bad credit, no mortgages and other financial difficulties. If you have a NW of 200K and you lose a $1.5M case, you're had!

See what the levels of risk are, in your area,  it's much different running a 40 unit apartment complex than a single family home. It's also different if you are known to have resources like a target on your back or if you have nothing, nothing can keep you out of court too. But, get insurance! :)

Shawn Thom · Answer

Price an umbrella policy and I think you'll be surprised at how cheap they are.  Every state is different for insurance and it also depends on your individual risks (past claims history) but I think it is worth it.

Also remember, you are at risk in your auto potentially too.  Again every state is different, but in Texas if you kill some one in an at fault auto accident i can sue you the same way.  The lawyer may see that you own properties and assume deep pockets.

Patrick L. · Answer

$1M/$2M plus an additional $2M umbrella.

Eric Belgau · Answer

@Nick Keesee

The common wisdom that you should have liability insurance to cover your net worth comes from the fact that claims tend to expand based on the depth of your pockets.  Let's say my dear old mom comes to visit me at the house I rent from you.  As she's leaving, the stair you haven't gotten around to repairing breaks, and she falls down to the pavement, cracks her head open, and dies.  As her heartbroken son, I hire a lawyer and go after you.

The number in that suit is likely to reflect your net worth in some way.  If you're a rich jerk who didn't care enough to fix the stairs on your rental, the number will be bigger than if you're a little guy doing your best with limited resources.

That's why people say you should have liability coverage up to your net worth.  It's not that the umbrella is actually protecting your net worth - like, if you have $2m in assets and $2m in coverage you'll never have to pay anything out.  Your policy will always pay up to its limits, and you'll always have to pay anything beyond those limits, regardless of your financial situation.

Also, the RISK of something bad happening doesn't care about your net worth.  In the above example, the claim might not be as big, but it's still going to exceed $1m, and it's still going to wipe you out.

So the bottom line is, the need for liability insurance INCREASES as your net worth goes up, but it doesn't DECREASE as your net worth goes down.  And because the cost of each stratum of coverage goes down (the first $1m costs more than the second $1m, which costs more than the third $1m) this is an area where it makes sense to be overinsured rather than underinsured.

Johnson H. · Answer

My liability insurance is at $1 million with a $2 million aggregate. It was only a few dollars more a month from a $500k policy and it allows me to sleep well at night. Also, make sure that your insurance covers the COST to replace the building, not the current value of the home if you purchased it for cheap .I don't recommend under insuring just to save a few dollars now. If you have high reserves, you could go with a higher deductible to save some money.

Mehran K. · Answer

My policies on my properties are all $1m liability, $2m aggregate.

I've been considering getting the umbrella to get up to $2m coverage.

Eric Belgau · Answer

I usually recommend $2 million in liability as a minimum, and I shoot for $1 million on the property policy and $1 million on an umbrella to start with.

Some carriers don't offer the $1 million limit on the property policy.  A lower limit there is fine as long as it's high enough to support the umbrella, and as long as we increase the umbrella limit to reach that $2 million minimum.

So John T is fine with his underlying limits of $300,000 because he has a larger umbrella and, I assume, the umbrella only requires a $300,000 underlying limit.

If there's a substantial price difference between the two policies, it is almost certainly because of a difference in how the carriers underwrite the property.  (Liability coverage that's included in a landlord policy isn't that expensive.)  So you'll probably be better off with the $500,000 liability limit and an umbrella.