There’s no greater joy than having your home the focal point of the neighborhood, but along with the shouts of joy in the pool all summer and smiles on the bouncing faces soaring above the trampoline come liability risks that could threaten your family’s financial well-being.
While the chances of being sued are very slim if the unthinkable did happen, there is a risk that your traditional homeowners and auto insurance policies would only cover a fraction of your total wealth, and legal judgments exceeding coverage limits could leave you personally on the hook.
“Even if you don't have above-average risk, if you're sued and found at fault for personal injury to others, your homeowner's and auto insurance may not fully cover your liability,” explained Patricia Mertz Esswein in Kiplinger’s. “If you get hit with a judgment, your home or auto insurance policy will pay up to the limits of your liability coverage, plus attorneys' fees. If your insurance doesn't cover the tab, your future earnings, home, and other assets could be on the line for the difference.”
The good news is that there are cost-effective excess liability insurance policies, the aptly named umbrella insurance, that can provide an extra layer of security to protect your assets and give your family peace of mind.
"Umbrella insurance," according to Kyle Dean of Dean and Draper Insurance, "is a type of personal liability insurance that can cover claims in excess of the limits of your regular insurance policy."
“While excess liability insurance is a convenient and cost-effective way to protect an individual’s wealth against this risk, it is often overlooked by clients, and high-net-worth clients are not the exception. In a poll of 200 families with more than $1 million in investable assets, only 10 percent reported having excess liability coverage,” reported the Financial Planning Association (FPA) .
Most umbrella insurance policies require a minimum amount of underlying liability coverage from your homeowner and auto policies.
The FPA reported that excess liability coverage policy limits usually start at $1 million for an annual premium between $150 and $300, with each additional $1 million of coverage, the incremental premium cost gradually diminishes.
How much coverage to seek?
“First, a cost–benefit analysis should be conducted, which weighs the tradeoff between premiums that must be paid versus the peace of mind that a client’s wealth is protected in the event they face a personal injury lawsuit. Next, a risk assessment should be conducted as each individual and family has different levels of exposure,” says the FPA. “Another benefit of owning excess liability insurance is that legal representation is usually provided and paid for by the insurance company.”
Like any insurance coverage, it is important to understand what umbrella insurance will cover, and what it will not cover.
Umbrella insurance, according to Investopedia, typically covers:Umbrella insurance is particularly valuable if you have a substantial net worth to protect as it acts as a buffer, preventing your hard-earned assets from being seized to settle legal claims.
Accidents can happen at any time in any place, but some special scenarios carry extra liability risks such as owning a pool or trampoline.
“While some covered perils and liability coverage are included in homeowners insurance, the Insurance Information Institute recommends pool owners have a personal umbrella policy,” says the Independent Insurance Agents & Brokers of America (Big “I"). “Pools can be a great source of enjoyment for young and old alike, but they can also pose a greater risk for accidents, leaving your pool-owning customers potentially liable for medical expenses and legal fees.”
This is where umbrella insurance shines. It steps in to cover medical bills, legal fees, and other associated costs that can arise from such incidents.
“Having a teenage driver in the family also puts you at increased risk, as does owning a dog or owning a home with a swimming pool. Basically, the more likely you are to be sued, the more strongly you should consider purchasing umbrella insurance. But anyone who is risk-averse will sleep better at night knowing they’re protected by an umbrella policy,” advises Investopedia.
Let’s examine those special scenarios where umbrella insurance or excess liability insurance may be warranted:
Keep in mind that typical umbrella coverage does not extend to your business or professional activities, which may require a separate business policy with liability coverage as well as a commercial umbrella policy if you want the extra coverage.
Reach out to Dean and Draper Insurance today to get the right umbrella insurance coverage to protect your family and assets.
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