What Is Liability Coverage and How Much Do You Need?

Liability coverage is the quiet workhorse of your insurance, the part that protects not just your belongings but everything you own and will earn. It is also the coverage people understand least and carry too little of. Here is what it does and how much you actually need.

What liability coverage protects

Liability coverage pays when **you are responsible for harming someone else** or their property. On a car policy, it covers the other driver's injuries and vehicle damage if you cause an accident. On a homeowners policy, it covers someone hurt on your property, or harm you accidentally cause others. It pays their costs, plus your legal defense, up to your limit.

Why the limit is everything

The real danger is being **underinsured**. If you carry a $50,000 liability limit and cause an accident with $200,000 in injuries, your insurance pays the first $50,000 and you can be personally responsible for the remaining $150,000. They can come after your savings, your home, even future wages. The limit is the wall between an accident and financial ruin.

How much you actually need

A common guideline is to carry liability limits at least equal to your **net worth**, so a single lawsuit cannot wipe out what you have built. For many people that means more than the legal minimum. Once your assets grow past what a standard policy covers, an **umbrella policy** adds a large extra layer cheaply, often a million dollars of protection for a modest annual cost.

Find out what you actually carry

Most people have no idea what their liability limits are. Drop your auto or home policy into MyPolicyShield and it will show you exactly what your liability limits are and whether they are enough to protect what you own.

You may be one accident away from real trouble and not know it.