Families with one or more high-end homes, luxury vehicles, jewelry, or art collections and many income-producing years ahead of them are at higher-than-average risk of a personal liability claim. Yet, successful families like these don’t always have sufficient umbrella liability coverage limits—or may not have an umbrella policy at all.
A closer look at the current liability landscape and the very real possibility of a personal judgement reveals why more families today need umbrella liability insurance, at higher limits than you might think.
Personal Liability Exposure is Rising
The litigious nature of our society has made personal liability lawsuits more common, often resulting in astronomical judgements. Consider these “taken from the headlines” scenarios:
- A driver making a right turn fails to see a pedestrian who steps into the crosswalk in his blind spot. The pedestrian, a renowned surgeon, falls on his hand and suffers permanent nerve damage even after multiple procedures. He can no longer practice surgery and will forego millions in future earnings. The driver—a successful executive with a large investment portfolio and many other assets—is hit with a $9.8 million judgement.
- An affluent family hosts a high school graduation party in their backyard. One of the attendees slips while running on the pool deck and tears his ACL (anterior cruciate ligament), causing him to lose his college sports scholarship. The party hosts are sued for $1.5 million.
Fortunately, the families in these two examples had the proper insurance protection to cover the damages. But that is not always the case, even for successful families with significant assets.
Who Needs Additional Liability Coverage?
The only line of defense between a liability judgement and your personal net worth is adequate insurance. While there is no hard-and-fast rule for determining whether you and your family need significant liability coverage, several factors make it likely that you have a higher-than-average exposure to a lawsuit or other claim.
For example, if your primary home is worth $1 million or more, or you own one or more seasonal or rental properties, you’ll want to ensure you have adequate liability insurance to protect your assets against a judgement. The same is true if you collect fine wines, art, or cars, or have a swimming pool on your property.
However, it’s not only what you own, but what you do, that affects your liability exposure. For example, high-profile individuals, those who serve on boards, and those with highly lucrative careers are at greater risk of a lawsuit with a large judgement.
Factors like these—and many more—can raise your liability risk, and the more boxes you check, the greater your exposure. (Interested to find out your level of personal liability risk? Use this interactive checklist for a quick view into your exposure to a liability claim.)
Why Are Many Families Underinsured for Liability?
While many families and individuals have high exposure to liability claims, a large portion of them fail to reduce their risk by securing sufficient insurance. The fact that standard homeowners and auto policies already provide some degree of liability protection may be part of the problem.
For example, auto policies typically offer the option to buy as much as $500,000 of liability coverage per accident, and homeowners policies usually offer up to $500,000 of liability coverage per incident. However, those limits are not nearly enough to protect a successful family that has substantial assets.
The solution is to purchase an umbrella or excess liability policy that provides coverage over and above the liability limits of a home or auto policy. (A true umbrella policy also can cover exposures not outlined in the homeowners or auto contract, whereas most personal liability policies are excess policies that pick up where the auto or homeowners policy leaves off. But the term “umbrella” is now synonymous with excess liability.)
If you buy your personal home and auto insurance online without soliciting independent advice, you might overlook adding an umbrella policy or opt out of adding the coverage because it’s easy to assume that “it can’t happen to me.” Even if you purchase your insurance through an agent, they might not conduct the due diligence to determine if you need the coverage, or they might offer the coverage and you still might decline. That leaves many successful families exposed to a liability judgement.
How Much Liability Coverage Do You Need?
An umbrella liability policy provides an added layer of protection over and above your auto and homeowners policies, as well as additional defense counsel resources in a lawsuit. For example, if a serious auto accident results in a lawsuit, an umbrella policy would cover the plaintiff’s medical bills, the legal costs to defend the at-fault driver, and the judgement—all in excess of the auto liability limits, up to the umbrella policy limits. The insurance would insulate the driver from high out-of-pocket expenses and protect their net worth.
Determining how much umbrella coverage you need is complex, and since there is no standard liability policy language, each insurance carrier will develop its own contract and include or exclude items that are relevant to you.
Your personal net worth—including all investments, homes, vehicles, and high-value collections—is a good starting point for calculating the right coverage amount. From there, an insurance advisor will evaluate your public profile, lifestyle, family situation, and future earnings potential to determine your degree of exposure, which could change over time.
For example, if you’ve recently sold a business or added two teen drivers to your auto policy, then your exposure to a major judgement will be much higher. At times like these, increasing your umbrella policy limits can provide greater peace of mind.
How B. F. Saul Insurance Can Help
As independent insurance advisors to countless successful families, the experts at B. F. Saul Insurance understand the importance of protecting what you value. Our team has the experience to determine your exposure to a liability claim and help protect your personal net worth with the right liability coverage, customized to your needs. We ask questions to understand your personal situation and risk factors, consult with you, and ensure you always have the liability coverage to meet your evolving needs.
If you have significant assets that need protection from a liability claim, use our interactive checklist as a first step to assess your exposure. Then, contact a B. F. Saul Insurance advisor to learn how to protect your net worth with the right umbrella liability policy.
Jean Satterfield is a Personal Lines VP & Account Executive at B. F. Saul Insurance with over 40 years of experience in the insurance industry. Throughout her career, she has worked in various areas of insurance, including malpractice and small business insurance, but her primary focus has been on personal insurance. She specializes in serving the insurance needs of high-net-worth families and her key responsibilities include assessing coverage requirements, researching and presenting optimal solutions, and guiding clients through the claims process when necessary.