Most individuals consider protecting their family and assets from potential liability to be a concern, as evidenced by the thriving insurance industry. Having insurance on hand to protect your home, vehicles, and individual health are certainly the norm. One consideration involves the potential consequences if you face a claim that exceeds your insurance policy limits. In today's environment, those who consider themselves to be “middle class” could still potentially face liability claims of over $1 million. Umbrella insurance policies are designed to provide additional coverage in situations where you have reached the limitations of your policies, such as homeowners or auto insurance. Umbrella coverage is usually a separately purchased policy and could be called upon to protect your savings and assets from disaster. Many insurers that offer these products require that you also have your homeowners or auto policy with them in order to qualify for an umbrella. This coverage may apply for critical coverage of bodily injury, damage to property and liability for landlords. They do not typically apply to claims associated with contracts, intentional, or criminal acts.
Personal umbrella policies are usually issued in large increments such as $1 million. An example of a scenario where these policies may apply would include if you were determined to be at-fault in a vehicle accident where another party is severely injured. If the medical costs of the injured victim exhausted the $250,000 limit of your auto liability policy, then this coverage would be available. A recent study by ACE Risk Services indicated that although many affluent individuals ($5 million or more in assets) consider themselves to be potential targets for high-value liability claims, yet roughly 20% do not have umbrella plans in place. The report explained that most home and auto insurance policies have limits near $500,000; however, approximately 15% of personal injury settlements and awards exceed $1 million.
The report suggests that your amount of coverage should be at least reflective of 50% of your net worth. The ACE report gave an example of the annual cost of a policy for someone with a home, two vehicles and two drivers, as being approximately $383 for $1 million in coverage.
Typically, you can assume that every additional million in coverage will equate to an additional $300 annually. Those with very significant net worth have been known to use these policies for benefits including damage to their public image in high-profile cases. It is recommended that a quote be obtained from an insurance agent who will closely review your individual assets and potential liability specifically.
There are specific assets and property owned that may make an individual more likely to encounter a high-value liability claim including:
- Swimming pools
- All-terrain vehicles
- Aggressive dogs
State Farm Insurance offers umbrella liability policies that extend to cover unusual occurrences that include claims of character defamation, slander and libel.