Why Wealthy Households Need Personal Umbrella Coverage

October 27, 2017

For high-net-worth individuals, the financial consequences of being sued can be serious business.

They typically have more assets at risk should be they be hit with a large court settlement or judgment and, while compensatory damages may be standard across the board, some juries have seen fit to punish the rich especially hard for their negligence. 

But if you don't think it can happen to you, consider these not-so-far-fetched scenarios:

• You agree to host a charity function at your home and when 65 guests are on your backyard deck, it collapses, injuring many.
• One of your teen children is involved in cyber-bullying a child and his parents sue your child and you for inflicting emotional harm. 
• Your husband is at fault in an auto accident that kills two passengers in the other car and severely injures the driver.

While your underlying automobile or homeowner's policy would pay for many of these damages, the policies usually cap liability payouts at a certain amount - typically $500,000.

Any damages above that would come out of your pocket and assets, unless you have an umbrella policy, which will kick in after your primary insurance limits are breached. 

But the problem for high-net-worth individuals is that a typical umbrella policy is often capped at $5 million, and that may not be enough if a large judgment is leveled against you. 

Ideally, you would secure enough liability coverage in a personal umbrella policy to ensure your wealth is not wiped out from a lawsuit, and there is a special line of umbrella coverage that is geared towards high-net-worth individuals that require higher limits. 

Fortunately, there is a select group of companies that offer specialized personal umbrella policies that have limits as high as $100 million - and they can be customized specifically to your situation. 

Why you need it
As a high-net-worth individual, you also have more liability risks than most individuals, since you are more apt to: 
• Hold a charity function or other event at home
• Serve on boards of directors
• Have swimming pools, trampolines and personal watercraft
• Rent out properties
• Employ residential staff like maids, nannies, drivers and gardeners. 


Making matters problematic for wealthy households are common-law joint and several liability statutes, used in cases where two or more defendants are found liable for damages. In such cases, the winning plaintiff may collect the entire judgment from any one of the parties. 

Joint and several liability
Consider this case of joint and several liability. 
Four teenagers were horsing around in a car driving through a neighborhood and hitting trash cans placed on the side of the road for garbage day the following morning. 
One of the boys stuck his arm out the window to hit one of the garbage cans with his fist, but in doing so half his arm was severed.
Although all of them were essentially culpable for the accident, the plaintiff's attorney for the injured boy only went after the rich father of one teenager - and the other boys got off scot-free.

How a personal umbrella policy works
Basically, the umbrella policy sits on top of the liability portion of your automobile, homeowner's or watercraft policy and it begins to pay when you've exhausted the limits of the primary policy. 
You need to have specific minimum primary liability coverage amounts on the primary homeowner's, auto or watercraft policy to make sure there is no gap between when the primary liability policy stops paying and the personal umbrella liability policy begins to pay.
There are two main types of liability that the policy will cover: 
• Physical injury to someone and personal injuries (such those sustained from slander or defamation).
• Property damage to a third party that was caused by the insured. 

Lawsuit Threats Keeping Wealthy Households Awake

• An auto accident 47%
• A worker or household employee is injured while on your property 31%
• A visitor is injured while on your property 29%
• Being accused of misdeeds or being held liable for incidents in connection with volunteer work 22%
• Being sued as a result of a side business you conduct on your property 19%
• Being accused of libel, slander or invasion of privacy 18%
• Your pet causes someone injury or does serious property damage 18%
• Being accused of sexual harassment, discrimination, abuse or wrongful termination by a nanny or other household employee 17%
• A dispute with a neighbor 15%
• An altercation involving you or a family member 14%
• Other 20%



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