Have you ever thought about what could happen if you were hit with a large claim against you for property damage or personal injury? Like most people, you likely assume your existing homeowner or auto insurance policies will provide adequate coverage for such a claim. However, many times these policies either do not cover a particular claim or provide insufficient limits of liability.
To ensure your personal assets are fully protected, a personal excess liability policy, also known as an “umbrella policy,” can fill coverage gaps and reduce personal liability exposure. Without one in place, wealthy individuals in particular are vulnerable to a large damage award. In today’s litigious environment, awards can be very high — and those believed to have deep financial pockets are often targets.
Why you may need an umbrella policy
There are a number of reasons why someone may need a personal excess liability policy, including:
- Having teenage drivers;
- Having an adult child with alcohol or drug problems, and who may drive a family vehicle;
- Owning a dog;
- Having a swimming pool;
- Owning an “exotic” (exceptionally fast) sports car;
- Entertaining often at home;
- Serving on the board of a nonprofit organization, such as a church or homeowner’s association; or
- Having a home business.
If any of the above circumstances apply to you, an umbrella policy will greatly reduce your risk exposure. A quick glance at awards in recent personal injury cases demonstrates the extent to which juries favor injured parties. Millions of dollars are routinely awarded to victims of auto accidents, in negligence cases and other personal injuries. If a visitor to your home slips on a wet surface or falls, or your teenage driver hits a pedestrian while driving, you could be liable for millions of dollars.
An example from Hollywood
A recent celebrity lawsuit involving Tom Hanks and his wife, Rita Wilson, is a good example of a case where having an umbrella policy is important. A lawsuit was recently filed against the couple following a February 2015 car accident in which their 25-year-old son rear-ended another car. The suit claims the couple negligently allowed their adult son to use their car “despite knowing that Chester Hanks was a careless and reckless driver and a habitual user of drugs and alcohol.” While the outcome of this case is pending, it demonstrates why high-net-worth individuals are more vulnerable to such claims and why having a personal excess liability policy can aid in the protection of assets.
How a personal excess liability policy works
If you damage another person’s property, cause them injury or engage in slander or libel, the person has a right to sue for damages. You will also be held liable for similar injuries caused by your minor children and, quite possibly, adult children who are acting with your permission. If you have personal excess liability insurance, your policy can cover damages and reduce your out-of-pocket exposure and will often cover legal fees to defend you in the matter. Umbrella policies are intended to supplement existing home or auto policies — not to replace them. They can be structured to cover a spouse, children or even domestic employees. As your lifestyle changes, you can adjust coverage amounts to reflect your needs.
If you have questions about your current policies, we suggest meeting with your insurance broker who will perform a personal risk assessment and recommend how an excess liability policy can fill gaps.