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What's the difference between medical payments and liability on my home insurance?

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young couple in new homeYour home insurance policy can protect you if a visitor falls at your home and can even help you if you're sued for an accident outside your home.

Home insurance policies have two components that can help you in these situations:

  • Medical payments to others
  • Personal liability coverage

Medical payments to others deals with injuries that happen to a guest in your home regardless of who's at fault. The limit is lower than liability insurance.

Personal liability insurance has much higher limits, but only covers incidents in which you were legally responsible.

These are two entirely different types of coverage, so you may need both on your homeowners insurance policy.

Let's walk through medical payments and liability home insurance, what each covers, their limits, why you need them and what to do if you need even more liability insurance.

What is medical payments to others on my home insurance policy?

Medical payments coverage is the part of a home insurance policy that covers you if a guest is injured at your home whether you're to blame or not. Medical payments coverage is meant for small claims.

A common concern is knowing how much medical payments  insurance coverage you need. Medical payments coverage usually has a limit of $1,000 to $5,000. The amount varies by policy and state, but generally has a much lower limit than liability coverage. So, typically you choose either $1,000 or $5,000 as the amount of coverage for medical payments and that is sufficient.

Here's an example of when you would need medical payments coverage: Let's say you invite friends over and one of them cuts his ankle on your patio. He's not seriously injured, but heads to the hospital and needs stitches. Medical payments would cover the medical costs as long as the costs don't exceed the limit.

This type of coverage helps you avoid potential litigation.

How is liability home insurance different from medical payments?

Personal liability coverage has much higher limits -- as much as $500,000. Your limit depends on your policy. The higher the limit, the more you'll pay.

Though liability coverage isn't required, you should still think seriously about having liability coverage. If you have a mortgage, your lender will likely demand that you have the coverage.

Personal liability is in place to protect you in case you are liable for an injury or property damage. The coverage begins at $100,000 and covers you and family members who live with you. It does not cover your tenants if you rent out a portion of your home. Instead, tenants need their own renter's insurance policy.

This type of coverage deals with property damage, medical bills, pain and suffering and lost wages. Liability coverage can also cover you for death benefits and legal costs.

Other common reasons why you might need liability coverage is dog bites and damage to a neighbor's home. You might think your dog would never bite someone, but the Insurance Information Institute says that dog bites account for one-third of home insurance liability claims.

Though liability coverage is part of your home insurance policy, you're covered away from your home, too. Yes, your home policy covers you when you're not at home. Why? Home insurance liability coverage protects your assets. If you rack up large legal bills, the plaintiff may go after your most valuable possession -- your house.

Let's look at an example: You're at fault for a serious injury and the victim accrues $300,000 worth of medical bills, rehabilitation costs and lost wages. The victim files a claim against your liability coverage. If you have liability coverage of at least $300,000, your home insurance plan will cover it. If not, you could have to fork over thousands or get sued.

Liability insurance won't cover you if you injured someone on purpose or if the person was injured on your property, but it's not your fault.

Liability coverage amounts begin at $100,000, but that's likely not enough to cover you and your house. Imagine what would happen if you owe $300,000 because of an incident, but you only have $100,000 coverage. Your home may be at risk.

Experts recommend that you have liability coverage to at least $300,000.

Umbrella insurance

You may find that you can't fully protect all of your assets with a $500,000 liability policy.

If you own a home that's worth more than your liability limit, you may want to purchase a separate umbrella policy.

An umbrella policy allows you to up your liability protection limit -- all the way to $5 million. An umbrella policy kicks in once you've maxed out your liability coverage.

The good news is that umbrella insurance won't break the bank. You will likely find a $1 million umbrella policy for less than $200 a year. That could be worth it if you own multiple homes and assets that exceed $500,000.

How to afford more liability insurance

Being properly protected with liability insurance can save you from financial ruin, but what can you do to lower your home insurance premiums so you can afford more liability coverage.

Here are some ways to lower your home insurance premiums:

Get quotes from other home insurance companies. It's a good idea to occasionally get quotes from other home insurance companies. See if you can save money elsewhere. Check to see what discounts are available. You may be able to save 25 percent on your home insurance policy by taking advantage of various discounts.

Bundle your policies. Insurance companies usually lower your rates if you have more than one policy with them. If you have your auto policy from another company than your home policy, contact your insurers to see if you can get a discount for bundling policies. You could save hundreds by bundling policies, which you can use to increase your liability coverage.

Increase your deductible. You should review your deductible each year to see if that amount still makes sense for you. The higher the deductible, the lower the premiums. Plus, having a low deductible may tempt you to file a claim when you should really handle repairs yourself. Filing too many claims will increase your premiums and may get your insurer to drop you.

No matter what deductible you decide, it's smart to set aside that amount in case you need it to file a claim.

Shopping for liability insurance and medical payments coverage

Liability and medical payments coverage are key considerations when buying home insurance.  Both are important pieces of a homeowners policy.

Before reaching out to an insurance company, figure out what coverage levels you want and then get quotes from multiple home insurance companies to see if you can get a better deal. By using Insurance.com's tool, you can see average home insurance rates by ZIP code for 75 coverage levels to get an idea of what to budget for. You can also see the highest and lowest rates fielded from up to six major insurers, so you can compare rates to be sure you don't overpay.

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