Introduction You are in your car, talking on the phone and you get into an accident or someone falls on your property and is injured, what happens next? Imagine losing a million-dollar lawsuit. Could you afford the legal defense costs to win the case, or worse, the award granted by the jury if you lose?
Today, Americans are suing more often and litigating a wider range of claims. They also are winning larger judgments than ever before. An Excess Liability Policy (Umbrella) is an inexpensive way to protect your current assets and future income.
What is an Excess Liability Policy? In the event of a lawsuit, your home, auto, motorcycle or watercraft policy's liability coverage provide your first line of defense. These policies provide money for a lawyer and if you lose the lawsuit they will provide the money for the judgment against you, up to the liability limit of the policy. Once the liability limit is reached, without an Excess Liability Policy, the balance of the judgment would come out of your own pocket.
An Excess Liability Policy, sometimes called an Umbrella Policy, is exactly what it sounds like, a policy that provides liability that is excess of the liability limits on your home, car, motorcycle or watercraft insurance. To qualify for an Excess Liability Policy you are required to have specific liability limits on your other policies. If you do not carry the required limits, you would have a gap in your insurance that would come out of your pocket. Below is an example of the liability limits a company may require to secure an Excess Liability Policy (your company may have different requirements).
Home, Renters, Co-Op, Condo Liability: $300,000
Auto, Motorcycle Liability: $250,000 per person; $500,000 per accident;$50,000 in property damage
Watercraft Liability: $300,000
You can purchase an Excess Liability Policy with limits starting at $1,000,000 and increasing in $1,000,000 increments. Once you hit $5,000,000 the policy limits increase in $5,000,000 increments. Chubb will offer limits up to $50,000,000 and higher limits are available. The premium is based off of how many exposures (homes, cars, motorcycles and boats) you have. A $1,000,000 Excess Liability Policy would cost between $150 and $250 per year. Each additional million would cost about $150, depending on the number of exposures. Once you pass $10,000,000 the cost is about $3,000 per $5,000,000 in coverage. This is due to the fact that there are fewer people purchasing these higher limits.
Your driving record will come into play when you are buying this policy. You want to buy a policy that provides Excess Uninsured/Under-insured Motorist Coverage. This provides additional coverage in the event you are in a car accident, it is the other persons fault, you are injured and they have no insurance or less insurance than you do. You also want to make sure you are protected for Liable and Slander, you may have to add an endorsement to your home insurance to have this protection on your Excess Liability Policy.
Why do I need an Excess Liability Policy? Very simply, to protect your current and future assets, you can easily become part of a lawsuit if:
You drive
You have young drivers in your household
You have guests at your home
You have a pool
You have a vacation or rental property
You serve on a board of directors of a not-for-profit organization
You are a member of a homeowners association
You travel, especially out of the country
You have assets
You could be involved in a law suit if you are walking down the street in the rain and a gust of wind takes your umbrella out of your hand and it injures someone. Without an Excess Liability Policy, your home, investments and income are your Excess Liability Policy by default.
Where do I buy an Excess Liability Policy? This policy is purchased from the agent that provides your car and home insurance. Some companies require that you have both the car and home insurance with them to provide the Excess liability Policy. GEICO will write an Excess Liability Policy if you have auto insurance with GEICO. Chubb will write the Excess Liability Policy if you have your home insurance with Chubb (this is not a recommendation of companies, just for example purposes).
How much coverage should I buy? There is no set answer on how much coverage to purchase. You want more insurance than the amount of the judgment against you. Unfortunately you do not have that answer till it is too late. $1,000,000 does not go as far as it used to any more. Your net worth plus ten times your income is a good starting point when you are looking at coverage.
A Personal Excess Liability Policy will not provide protection for any lawsuits related to a business. If you have a business out of your home, your home insurance and personal excess liability policy will not provide liability protection. You need to purchase a Business Owners Policy (BOP) that will provide coverage for your business personal property and liability protection.
We Can Help For additional information, please contact Brian P. Boak, CLU, LUTCF, at 201-837-1100 or Brian.Boak@singernelson.com. This information is for general knowledge and does not replace any terms and/or conditions of any policy. Please read your policy to confirm exact coverage.
