High-net-worth individuals face a greater risk of being sued, especially when unemployment is high and economic growth is tenuous.
According to a survey by ACE Private Risk Services, 80% of households with $5 million or more in assets believe their wealth makes them a target for lawsuits. These are real fears. Under the doctrine of joint and several liability, any defendant can be held accountable for a plaintiff’s injury, so smart lawyers will target the defendant with the highest net worth.
In spite of this, less than 40% have coverage of more than $5 million and 21% have no coverage at all.
Many wealthy families leave themselves open to liability and preventable lawsuits for two reasons:
- They underestimate the cost of damages they could be forced to pay.
- They assume the cost of effective protection is higher than it really is.
Typical homeowners’ and auto insurance policies will only cover $300,000 to $500,000 in damages, but lawsuits in the millions are common.
It’s important to purchase coverage that prepares for the extreme cases, not just the likely ones. Trusts and foreign accounts can shield some assets from litigation, but courts have tremendous reach. The best way to protect yourself is with excess liability or umbrella liability insurance.
Both policies are far cheaper than most people realize. They often cost just a few hundred dollars per policy for millions of dollars of coverage. This cost can be offset with slightly higher deductibles in other policies.
People often confuse umbrella liability insurance and excess liability insurance. While both protect people and businesses from dramatic loses by giving them access to additional coverage, they have a few differences.
What is excess liability insurance?
Excess liability insurance is an extension for another type of liability insurance. When a claim is reported to your insurance company, the underlying primary policy is the first to pay. If there are more damages, the excess liability insurance picks up the rest (up to your policy limit).
Excess liability insurance adds additional coverage to only that policy. It can’t be applied to another policy. If coverage isn’t provided by your underlying policy, it isn’t provided by the excess liability policy either. Excess liability insurance usually pays for the legal costs of defending the claim.
What is umbrella liability insurance?
Umbrella liability insurance is similar to excess liability insurance, but it can be applied to multiple underlying policies. It can also cover claims that are not included in the underlying policies.
For an umbrella policy to cover a claim, clients need to pay self-insured retention. This is like a deductible, but it’s paid directly to the claimant.
It’s important to make sure your policies work together without gaps. For example, if your umbrella policy is set to pay damages in excess of $500,000, make sure your other policies cover you up to $500,000. If there’s a gap, you could be forced to pay.
For the best protection, combine your insurance policies with a single company. This reduces the overall cost of your insurance and provides a single, coordinated legal defense in the event of a lawsuit.
Rachel Winslow
Personal Lines Account Executive
