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Homeowners liability insurance and unmarried co owners

What are the implication on the homeowners insurance for co buyers who are not married?

Home Insurance | Huff Insurance | Pasadena MarylandIs a previous blog, I discussed the impact to the renters insurance policy for unmarried roommates.  In this blog, I will go over the impact on a homeowners liability insurance policy for non-married co owners.

With the non married renters situation where we recommended that you each purchase your own renters insurance policy.  But when you buy a home together, you’ll have to get one homeowners insurance policy listing both of you as named insureds.   There is not an option for each of you to buy a separate homeowners policy.

But like the renters situation, there still can be an issue when it comes to the liability portion of the homeowners insurance policy.

Because you are not married, each of you can be sued separately for an incident that you are both liable for.

We are going to set up the following example based on a homeowners insurance policy with $300,000 in liability coverage.  $300,000 is a common figure we see on a lot of insurance policies that we look at in our office.  One thing to remember is this is a per incident limit.

Claim example:  You host a Super Bowl party and someone slips on a wet floor and ends up breaking their wrist and wrenching their back.  Their attorney files a lawsuit against each of you for $300,000.

Right away, you may be thinking that you are fine, since the limits on the policy are $300,000.  But upon closer inspection, you will notice that there is a potential of a $300,000 weakness in coverage. This is because the attorney is suing each of you for $300,000.  That means that there is a potential for a judgement of $600,000 in total damages to be awarded.

Now it can get sticky for you in the following situation.  You and your co owner end up using separate attorneys.  You co owner’s attorney sees this policy weakness and quickly settles their lawsuit for the $200,000.

So how does this insurance settlement affect you?

Looking at the policy, this only leaves $100,000 in liability for the incident to cover your portion of the lawsuit.  So, if your attorney cannot settle for the $100,000 left in the liability insurance for the incident, you will be left holding the bag for the difference.  Which means your personal assets and even future wages will can be at risk.

So how do you protect yourself from this homeowners insurance coverage weakness?

We have a couple of ideas and ways that you can mitigate this risk.

  1. Increase the homeowners insurance liability limit to $500,000 and purchase one umbrella insurance policy for the owners.
  2. Increase the homeowners insurance liability limit to $500,000 and purchase a separate umbrella insurance policy for each owner.
  3. Buy the home in one name with the homeowners liability insurance limit of $500,000 for the owner and then have the other occupants buy their own renters insurance policies. And owner and roommates buy their own umbrella insurance policies.

Scenario number 1:  Increase the homeowners liability insurance limit to $500,000 and purchase one umbrella insurance policy for the owners.

In this scenario, we are essentially adding more liability insurance coverage for the owners to share.  For example, if the home insurance liability limit was increased to $500,000 and then an umbrella insurance policy is purchased for $1,000,000, there would be $1,500,000 in liability limits to be shared by each of the owners.

There is still a chance that one of the owners could exhaust the limits of the policy in this scenario.  But with the higher limits, the probability of that chance is reduced.  We would advise to increase the umbrella limits to $2,000,000 or higher in this situation.

Scenario number 2: Increase the homeowners liability insurance limit to $500,000 and purchase a separate umbrella insurance policy for each owner.

In this situation, the primary homeowners liability insurance limit would be shared between the owners.  Keep in mind, this is not an equal sharing per my example above.

Then each owner would purchase their own umbrella insurance policy at least $1,000,000.  These limits would not be shared with the other owners.  They would be just for the owner who is the named insured on their own umbrella insurance policy.

This would provide more protection for the individual owners as they each would have their own limits under the umbrella policy.

Scenario number 3: Buy the home in one name with the homeowners insurance limit of $500,000 for the owner and then have the other occupants buy their own renters insurance policies.  And owner and roommates buy their own umbrella insurance policies.

In this scenario, there would be no shared liability insurance limits.  The owner would have their home insurance liability limit of $500,000 plus their own umbrella liability limit of at least $1,000,000.

Each roommate would also have their own renter’s liability insurance limit of $500,000. In addition, they have their own umbrella liability limit of at least $1,000,000.

So in this last scenario, each occupant of the house would have the most coverage for themselves.

We understand that it is not always possible for someone to qualify for a home loan on their own.  So we know there are many cases these days where un-married people are buying houses together in order to qualify.

The point of my blog was to point out the different ways in which you all could secure insurance coverage to provide the best homeowners liability insurance protection for you and your situation.

Huff Insurance is a Maryland Trusted Choice Independent Insurance Agency.  We love, respect, and protect our clients and our community.  We have been doing so since 1960.

If you have any questions on this blog, or any other for that matter, feel free to give us a call at 410-647-1111.

Let us know if there are any other topics that you want us to go over that we have not addressed on our website or blog.

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