Definition:
Liability insurance is a type of coverage that protects homeowners from financial loss if someone is injured on their property or if they accidentally cause damage to someone else's property.
Example:
While hosting a backyard party, Mark’s guest trips on a loose paver and breaks an ankle. Thanks to his liability insurance, Mark’s policy covers the guest’s medical bills and protects him from a potential lawsuit.
Explanation:
Liability insurance is usually included as part of a standard homeowner’s insurance policy. It covers legal fees, medical expenses, and damages if the homeowner is found responsible for injury or property damage involving others. It doesn’t cover the homeowner’s own injuries or damage to their personal belongings—that’s handled by other parts of the policy.
In a real estate transaction, lenders typically require buyers to have homeowner’s insurance (which includes liability coverage) in place before closing. This protects the buyer from legal or financial trouble shortly after moving in and protects the lender’s interest in the property.
Typical liability limits start at $100,000, but many homeowners choose higher limits for greater protection. Umbrella policies can also be added for additional coverage beyond the standard limits.
Why is Liability Insurance Important in Real Estate Transactions?
Liability insurance is important because it protects buyers from unexpected legal and financial risks after purchasing a home. Accidents happen—whether it’s a guest slipping on a wet floor or a tree from your yard falling on a neighbor’s car. For sellers, keeping an active policy during the selling process can protect them from claims made during open houses or showings. Whether you're buying, selling, or already owning, liability insurance ensures you’re financially protected from potential accidents on your property.