Protect Yourself From Lawsuits: The Case For Third-Party Home Insurance

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You hear about personal injury lawsuits all the time. Somebody drank coffee that was too hot, somebody slipped and fell on a sidewalk, somebody fell from an amusement park ride. Most personal injury cases are against businesses — after all, it's more likely for someone to get injured due to the higher amount of human traffic through a business space. But, homeowners can also be sued by somebody who was injured because of their own negligence. You may find yourself losing your house and your savings if you aren't protected with third party home insurance.

What is third party home insurance?

Your typical home insurance coverage is called first party coverage. It protects your house when it burns down, is burglarized, or becomes damaged during a bad storm. It also protects you and your family from injuries that might result from these unforeseeable events. 

Third party coverage provides protection for you in case people are injured on your own property. It will be utilized to help pay for a lawsuit if someone ever claims that your are responsible for their injuries.

When might someone sue?

You can actually be sued if:

  • you are directly responsible for the injury. For example, if you harm someone (even accidentally) by hitting them in head with a cabinet door, or tripping them during a party.
  • you are responsible for the injury because you are negligent. Negligence means you are aware of a potential hazard, and do nothing about it. For example, if you host a barbecue on your deck, knowing the joists are rotten, and someone falls through the deck, you would be liable for incurred damages.
  • you are responsible for the injury because you should have been aware of the danger. This may not seem fair, but, consider that you were having a Christmas party, and during the day, it snowed. Even though you may not personally know the walks are snow-covered and icy, the court will assume you were still negligent; because as a homeowner and a thinking person, you should have logically assumed the walks on your property were not safe.

How much coverage is enough coverage?

If you are in an area where people regularly pay house-calls and are invited into your home, including friends of your children, third party coverage is good idea for you. But how can you know how much is enough? Basically, you will want to make sure you have enough in case someone comes at you with a lawsuit, your policy threshold will be high enough so that you don't have any of the financial obligations on your own personal finances.

For example, if your policy is for $200,000, but the amount demanded in the suit is higher, you could end up paying for anything over that initial amount. However, because most homeowners do not have very deep pockets, the opposing counsel will usually keep demands within the insurance policy, simply because the company is more likely to settle than to allow you to go to court and incur a higher amount if they decline. The injured party is more likely to get paid this way, even if it is a lower dollar amount. 

That being said, if the injuries are severe and medical costs are in the millions, the injured party will simply need more. It's best to talk to your insurance advisor about the possibility of injury on your property and what you can afford on your annual policy. The higher you can afford to go, the better. Liability insurance is not the best place to cut costs; your advisor can give you tips on how to lower your premiums in other ways, such as upgrading alarm systems or weather-proofing the home against natural disasters. 

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