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Umbrella Liability–Offsetting the Risks of Personal Financial Loss

We are often asked “how much insurance do I need”?  This is a tricky question for most insurance professionals. Our immediate thought is “tell me the size of your claim and we will tell you what limit you need.”  Of course, at the time of a claim it is obviously too late.

One area that can be overlooked by individuals is Personal Excess or Umbrella Liability. This insurance policy is designed to provide additional protection when the underlying liability limits of your other policies (such as home, auto, or watercraft) are not enough to cover the unexpected costs of an expensive lawsuit or accident, and certain situations where your underlying policy may not provide coverage at all.

Consider these claim situations:

  • A guest falls from your balcony and is severely injured.
  • You are the at-fault driver in a three-vehicle accident resulting in significant bodily injury and property damage.
  • A tenant sustained bodily injury while renting your property.
  • You are sued for libel or slander for something you wrote or said about another person.

In each of these scenarios, your home or automobile policy may offer some protection.  But an Umbrella can provide an additional layer of protection once your standard policy limit is exhausted. Without a personal umbrella policy, you would be out of pocket for any costs beyond your standard policy limits.  If you are unable to pay with available funds, you could have a lien placed on your home, wage garnishment or retirement and additional assets placed in jeopardy.

It is a general rule of thumb that the more assets you have, the more liability coverage you should carry.  Your umbrella limit should be as high as you can afford to offset the risk of a personal financial loss if you were to be sued.  For instance, if your net worth is $2,000,000 and you are being sued for $700,000 but only have $100,000 worth of coverage, the plaintiff and their attorney can glean dollars from your assets to make up for the remaining damage.  Additionally, there is the common perception that plaintiffs are more likely to pursue those with higher net worth based upon the strong possibility of a payout.

There are several factors to consider when choosing an umbrella limit.  Do you own vacant land or rental properties?  Any pools or trampolines? Do you entertain often? How many vehicles and drivers are associated (especially youthful drivers under 25)? Are any household members prominent/VIP figures? Extreme social media participation? Just to name a few.

On average, the premium for umbrella limits is relatively inexpensive.  Depending on the type and amount of underlying exposures, typical pricing starts at $150-$300 for a $1,000,000 limit.  But all policies are not created equal.

There are several common instances where individuals may not be covered if their excess liability policy is not structured properly, leaving them exposed to financial loss in the event of a lawsuit.  Sentinel’s Private Client Services team works with specialized carriers who can provide coverage for the exposures including:

  • Lack of protection against uninsured or underinsured drivers. An astounding 1 in 8 drivers are uninsured.  If you or a family member were injured by an uninsured driver, or a driver with low liability limits, it could have a significant impact on your financial security.  Excess Uninsured/Underinsured Motorist Liability provides coverage for medical expenses and other accident-related costs.  Sentinel offers the option to add this coverage to your Excess Liability policy, with limits available up to $10 million.
  • Acting as a director or officer of a Not-for-Profit. Board members can be held liable for the actions or inactions of the organizations they serve, including accusations such as wrongful termination and breach of fiduciary duties.  Most organizations carry Directors & Officers Liability Coverage to protect board members.  However, it is common for an organization’s policy limit to be inadequate to truly protect the personal net worth of board members.  Sentinel offers the option to add Not-for-Profit Directors & Officers Liability Coverage to your Excess Liability policy, with limits available up to $5 million.  
  • Employing domestic staff, such as a caretaker or housekeeper. If you employ domestic staff, your Excess Liability policy affords coverage for claims of bodily injury by that staff.  However, the policy does not provide coverage for allegations of wrongful employment acts, such as wrongful termination, sexual harassment, and discrimination.  Even a frivolous claim by a staff member can result in a lawsuit and large legal costs.  Sentinel offers the option to add Domestic Employment Practices Liability Coverage to your policy with limits available up to $1 million.

Contact your Sentinel advisor today to learn more about adequate protection to continue to Safeguard Your Success.