What is “liability”? I see it on my auto and homeowners insurance coverage list, but I don’t know what it is, why I pay SO MUCH for it and why there is insurance to cover it.
According to the Websters sitting next to me, being liable is the same as being obligated or responsible for something you have done. Obligated or responsible to repair the damage you caused. Obligated or responsible to replace the item you broke. Obligated or responsible to pay the hospital bill for someone you hurt. You created the boo-boo and are responsible for the damage. You caused the damage and now you must somehow take the damaged party back to where they were before they “bumped” into you. Damages are usually fixed with money. Potentially a lot of money.
This is where the liability part of your auto or homeowners insurance you purchased steps in. If you had to come up with the money to “indemnify”, or make whole that which you damaged or injured, it could definitely sink your financial ship. One car bumper can cost $1,300+, a hospital stay can start at $25,000+ if the stay started in the Emergency Department.
Liability coverage is a third party coverage. All that means is that you do not see a dime of it. It only goes to “make whole” someone/something you have unintentionally hurt, damaged or destroyed. As a result of a car accident for which you are responsible, a loose step a guest trips and falls over at your home, or the little “nip” your doggie might have taken at one of your neighbors, your auto and homeowners liability coverage can step in and financially take care of those injured. You are taken care of because the money it took to help them didn’t come directly out of your pocket, vacation savings, or your kids’ college funds.
In an earlier blog I introduced you to Mr. Hunter and his quest to replace his income if his ship went down…..literally. This was an example of one of the first uses of modern insurance and “indemnification”. Insurance would have put Mr. Hunter back on a safe financial footing if the ship had sunk. He would have been “made whole” financially. One wrong step could literally sink your financial ship if you didn’t have the liability coverage in your auto and home policy to step in when it is most needed.