A bad habit has been spreading around here lately — people are seriously underestimating liability limits. Many assume nothing can really happen. And if it does, the damage will surely be minor.

That’s the ideal scenario. But when things actually go wrong, the consequences can be financially devastating.

I’m not a fan of typical “insurance talk” or scare tactics, but there are a few situations worth pointing out.

Most people think: “My apartment is worth eight million — why would I need a liability limit of fifty million?”
The answer is simple: damage to your own property is just the tip of the iceberg. The real financial trouble comes from damage to other people’s health or property.

• Bodily injury and lost income
  Imagine you flood your neighbor’s apartment. The neighbor happens to be a successful surgeon. He slips on the wet floor and, because of his injury, can’t perform surgeries for a month. In that case, you would be responsible not only for the property damage, but also for his lost income, compensation for pain and suffering, and medical costs. That can easily reach millions.
• Lifetime compensation payments
  A child or a dog suddenly runs into the street. A passing car swerves to avoid them and hits a pedestrian. The pedestrian ends up in a wheelchair for life… and the liability may come back to you. If you cause someone permanent disability, a court may order you to pay a lifelong annuity to compensate for their lost income. In such cases, the total amount can easily exceed 30 million.
• Health insurance reimbursement (regress)
  The health insurance company may demand reimbursement for all medical treatment provided to the injured person — surgeries, rehabilitation, hospital stays, and more.

Differences between insurance policies: What coverage do you actually need?

To be truly protected, it’s important to distinguish between three different types of insurance and understand what each of them covers.

Let’s use the example of renting out an apartment, where a triangle of responsibility arises.

1. Liability insurance related to property ownership (owner)

This insurance is tied to the building itself. It protects the owner when the property itself causes damage to someone else.

Examples:

• An entire row of houses burns down and the fire started in my apartment.
• A pipe bursts inside the wall and floods the neighboring apartments.
• Someone gets injured on the property — attention: the landowner is liable.

2. Property and household insurance (owner)

Be careful — this is not liability insurance, but protection for the property itself.

Examples:

• An apartment burns down due to a short circuit in the refrigerator belonging to the owner. The insurance pays for repairs to the apartment.
• Explosion, flood, vandalism, burst pipes.

Important: This policy does not cover damage caused by a tenant’s negligence (for example, leaving a candle burning).

3. Personal liability insurance (“idiot insurance”) – tenant or any cautious person

This insurance is tied to a person and their activities. It is portable and usually covers the entire family and even pets. It also applies outside the home — for example while traveling, skiing, or abroad.

Examples:

• A tenant forgets to turn off the faucet and floods the neighbors, or leaves a candle burning that starts a fire. Or their dog damages an expensive floor in the apartment (if included in the policy).
• A child scratches a parked car while riding a bike.
• In a store, you accidentally knock a television off a display stand with your backpack.
• While running for a tram, you accidentally knock someone over and they break their arm in the fall… and what if it’s that surgeon again?
• You collide with someone while skiing and they get injured. If you are found at fault, you can probably guess who will be asked to cover the rescue transport, medical expenses, lost income, and permanent injury compensation.

Ideally, this type of policy should be taken out by the tenant. Property owners should require it in the lease agreement with a sufficiently high coverage limit. But it’s also meant to protect you from the consequences of everyday mistakes outside the home.

So how about you?
Are you sure your liability limits are high enough?

Contact your advisor and discuss the possible risks together — and how to make sure you can sleep peacefully.

Who is responsible? A few examples.