By James Ahn, CFP®, AIF®, Senior Wealth Advisor
What if you were sued for everything you own? At Halbert Hargrove we virtually always recommend that clients carry umbrella coverage that will fully protect their assets from punitive litigation.
Lawsuits are a part and parcel of living in the U.S. Cases have become more frivolous and judges and juries have been awarding larger amounts of money. The good news is that umbrella insurance coverage can help alleviate those risks for a relatively nominal annual cost.
Meaningful extra liability coverage
Umbrella Insurance is an additional layer of insurance that can help pay for medical, court and other expenses that an individual may be required to pay after basic home and auto insurance policies hit their maximums. The protection is “turned on” when the liability coverages on your other current policies, such as homeowners and auto, have been exhausted.
Coverage levels start at $1 million and can go up to $10 million and above. This insurance helps pay for expenses such as injured persons’ medical bills, their lost wages due to the negligence of the at-fault person, rehab, etc. It also can cover legal defense if the negligence happens to land the at-fault person in court.
Typically, after adding up major medical expenses for the injured party – and legal fees of the negligent person – standard liability coverage in today’s environment is often not enough. Policyholders can add this additional umbrella coverage onto their other coverages using the same insurance providers.
Who should get coverage?
Individuals and families with significant assets – including owning their primary residence along with investment accounts and personal vehicles – would probably benefit the most from having umbrella policy protection. Otherwise, all of these assets are up for grabs if exposed to serious liability litigation, since basic policies would only cover a small portion of their value.
You don’t have to be wealthy to need a policy. Even if you don’t have much in the way of assets your wages can be garnished as well. If you are a renter, a renter’s policy typically covers up to $100,000 in liability protection whereas the starting point for umbrella is $1 million of coverage after your other coverages max out. For renters, deciding on whether to obtain an umbrella policy is more about recognizing the areas of risk you are involved with in your day-to-day activities as well as your livelihood.
If your net worth is $1 million or more, it’s a good idea to obtain coverage (immediately!) if you currently lack it. If your net worth is significantly above $1 million and you do have a policy, make sure you have adequate coverage. If you’re not confident concerning what your coverage levels should be, I’d urge you to consult with an advisor to help determine your options. Professional advice can be truly beneficial, particularly if your situation involves factors such as whether your assets are already protected through other structures.
In sum, determining the appropriate coverage limits for you and your dependents can be one of the most important decisions you make as part of your overall risk management and wealth protection strategy. It would be penny wise and pound foolish to think that umbrella coverage is an unnecessary luxury in today’s litigious environment. Please contact your advisory team with any questions you may have about ensuring that your coverage is appropriate for your situation.
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