How Much Personal Liability Insurance Do You Need?
Basic insurance coverage like homeowners, renters and auto usually carry
provisions for liability – the possibility that your actions or lack of action will
cause injury to another person or his property. Are your assets still exposed
by inadequate liability amounts?
Frivolous lawsuits and outlandish settlements got the public’s blood boiling again recently when a judge – yes, a
judge – sued a small, family-owned dry cleaners for $65 million for losing a pair of his pants. Small businesses,
this goes to show, are just as vulnerable to unfounded claims as their deep-pocket peers. A study by NERA
Economic Consulting determined that small businesses pay for 69 percent of civil lawsuit liability costs, although
they generate only 19 percent of business revenues.
Not a small business owner or big business executive? You could still face significant loss of assets from
damages and court costs in a liability claim. You get some protection through your homeowners, renters and auto
insurance, but every policy has limits and your policies may leave you exposed where you least expect it.
Umbrella policies provide extra, overall coverage beyond these specific policies.
Amounts usually range from $1 million to $5 million and typically cover losses
beyond what your other policies will pay. The coverage isn’t tied to your property
or vehicle so it goes with you where you go, but it typically does not cover
business activities, even if the business is operated from your home.
Your need for personal liability insurance depends on two factors: the amount of
assets you have and the risks associated with your lifestyle. Do you have a pool
on your property? Allow hunting on your farm or ranch? Have employees like a
nanny or housekeeper working at your home? All of those factors expose you to
risks beyond the scope of a typical homeowners policy.
Do other factors make you a target for lawsuits? Faced with the prospect of deep
pockets, some people will be tempted to pick them. Even frivolous claims can
cost you in time and emotional distress. Public knowledge of your assets, recent inheritance, land holdings,
income or lottery winnings – or even mistaken assumptions about these things – can bring out claims from the
classic slip and fall to more elaborate ruses.
Typically, umbrella liability coverage extends to your spouse, your children and any relatives living in your
household, under your care or under the care of a relative living with you. That can be a welcome reassurance
when you have teenagers driving or college students living away from home.
Umbrella liability insurance can protect what you’ve saved for a rainy day. Your financial advisor or insurance
professional can help you examine your current coverages and potential risks to determine how big your umbrella
needs to be.
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