Personal Property & Liability Insurance

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  • 0:01 What Is Liability Insurance?
  • 1:11 Homeowner's Insurance
  • 1:59 Renter's Insurance
  • 2:30 Automobile Insurance
  • 4:00 PULP
  • 5:18 Lesson Summary
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Lesson Transcript
Instructor: Tammy Galloway

Tammy teaches business courses at the post-secondary and secondary level and has a master's of business administration in finance.

In this lesson, we'll define liability and discuss how liability insurance can protect your personal property. You'll learn about four different types of liability coverage: homeowner, renter, auto and personal umbrella policies.

What Is Liability Insurance?

In the city of Littleton, the residents are waiting for the verdict in the Scott v. Brown trial. Scott, a homeowner, invited Brown to his home, where Brown tripped over a water hose in Scott's front yard and broke his neck. The injury caused paralysis from the neck down and Brown is seeking $1 million from Scott. Scott's attorney contends that Brown should have seen the water hose; however, Brown's attorney argues Scott should have anticipated the water hose as a liability. A liability represents a legal responsibility.

Scott is worried that if Brown wins the lawsuit, he'll need to sell all of his personal property: home, furniture, car, jewelry, boat and other items to satisfy the lawsuit. Scott's attorney tells him he may not need to liquidate his personal property because his homeowner's policy has a liability component to protect against these types of lawsuits. For the rest of this lesson, we'll discuss four insurance policies that provide liability protection: homeowner's, renter's, automobile, and personal umbrella liability policies.

Homeowner's Insurance

If you owned a $250,000 house and it was totally destroyed by fire, would you have the money to rebuild the home? Most would answer 'no,' hence the purpose of homeowner's insurance. Homeowner's insurance protects your home, personal property and detached structures against perils, which are the causes of losses. Perils could include fire, flood, hail, tornadoes, and much more.

The homeowner's policy includes a liability component. If someone becomes injured on the property, such as Brown in our example, the policy will pay for the loss up to a specified amount. The homeowner's insurance also protects the owner against defamation. If the homeowner legally insults another person, at the home or another location, the policy could also pay in the event of a lawsuit.

Renter's Insurance

Do you live in an apartment? Is your personal property protected from perils? Similar to a homeowner's policy, renter's insurance provides coverage for the items in the apartment as well as liability coverage. However, it does not provide coverage for the structure itself. For example, let's pretend your apartment is struck by lightning and the roof catches on fire, destroying your personal items. Your renter's policy will cover your personal items, whereas the roof and any structural damage would be covered by the apartment owner's policy.

Automobile Insurance

Automobile insurance generally offers four main types of coverage: liability, property damage, medical and uninsured motorist. Property damage, medical, and uninsured motorist coverage provides protection for the policy owner, while liability provides coverage to the other driver. Only liability is mandated by law, meaning most states have financial responsibility laws requiring drivers to purchase liability coverage. As such, basic automobile insurance often includes only liability coverage with the option to add other types of coverage.

Let's say driver A runs into driver B. Driver B is injured, his car is totaled and the accident caused damage to a nearby convenience store. Driver A's liability policy will provide coverage to prevent driver B from suing driver A.

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