Insurance: What’s your liability?

The purpose of insurance is to protect you against an insupportable loss – a loss that you could not afford to pay yourself. 

Liability insurance makes sure you can survive a claim on your years of accumulated assets. You may be able to survive the impact of replacing a car or a boat if it were uninsured. But can you even begin to imagine what the consequences would be of losing your home if it were uninsured? Probably not.

Now consider an even more painful scenario. Someone has been seriously injured while in your home (or in your car, for that matter) and you are being sued for $2 million. What would that do to you?

There is actually a means to protect yourself from these potentially devastating events — liability insurance.  Fortunately both your auto and homeowner policies address this need. It’s interesting to note that the probability of a car accident generating a significant liability is much higher than that of major damage to your home. Let’s look at them individually.

Make sure you are carrying enough liability coverage as a driver.  Minimum coverages are mandated by provincial legislation. The minim coverage against liability for bodily injury is currently $200,000 in all provinces except Quebec.

But you may want to consider boosting your coverage to upwards of $1 million.  Judgments in this range are comparatively rare in Canada, but if you drive frequently in the U.S., where lawsuits are more commonplace, settlements are larger, and in U. S. dollars, then the extra coverage is warranted.

It is possible that you could be found liable in Canada for an amount greater than $1 million.  But as a result of the rarity of such cases, the additional cost for the higher coverage, say up to $2 million, is not great.

If you’re a homeowner, comprehensive liability coverage is a necessity. While many homeowners’ policies provide $500,000 of basic coverage, it can be increased to $1 million or $2 million for a small additional expense.

Let’s say a delivery person trips on a loose board on the steps of your front porch. They break their leg, and sue you for damages. The coverage protects you, the insured, and members of the immediate family who live in the home.

It would pay the cost of a judgment, and the associated legal costs to defend you. It also covers your liability for bodily injury to anyone working in your home.

In the case of condominium and tenant policies, legal liability covers damage to premises or contents caused by fire, explosion, water or smoke resulting from owner or tenant negligence. 
Liability coverage also gives you protection if you accidentally injure someone or cause damage to another person’s property. Say you are water skiing and accidentally hit a swimmer, injuring the person. Your liability insurance would protect you, covering not only the damages that you may be ordered to pay, but also the legal fees spent to defend you in court.

Give careful thought to your need for this coverage, review your current coverages, and make sure they’re adequate. As devastating as losses of property might be to you financially, a successful claim against you for damages could be massive indeed.