By Andrew Hatherley on Mar 5, 2019
You’re entertaining some friends at your house and everyone is having a marvelous time. Suddenly you hear a crash in the kitchen and you race to investigate. You find one of your friends laying flat on her back, unconscious. She had slipped on some grease that had dripped on the floor, and as her feet flew out from underneath her she hit her head on the counter, suffering a severe head injury. She would require extensive medical treatment and a prolonged recovery. Between her medical costs, lost earnings, future lost earnings and future medical costs, the total settlement, which includes “pain and suffering”, will amount to $1 million. Are you covered?
The answer for most homeowners would, unfortunately, be “no.” The liability coverage available in a typical homeowner’s policy is $300,000. In this situation, a homeowner would be liable for the full amount of the settlement, which, after exhausting available liability coverage, could force the liquidation of assets or a lien against earnings to satisfy.
The personal liability limits of the typical homeowners and auto insurance policies have not kept pace with the skyrocketing settlements of personal injuries, driven, in large part, by rising medical and litigation costs. Most people are just a banana peel away from financial catastrophe; yet personal liability coverage is typically not part of the insurance protection discussion. It could be the most costly mistake you can make.
It gets worse for people with higher net worth. People of wealth can actually become targeted for liability claims. In a world increasingly divided into the “Haves” and Have-nots”, lawsuits have become a form of income redistribution. And, the higher your profile – as a business owner, a professional, a senior executive, and/or community leader – the bigger target you become.
For less than one dollar per day - $200 to $300 for most people – you can purchase an additional $1 million of personal liability coverage through an Umbrella Liability Policy. That’s $1 million dollars of coverage that will pay settlement costs after the liability limits have been reached in your homeowners or auto insurance policies.
Anyone who drives, entertains in their home, has kids playing in their yard, has a dog – pretty much everybody - should expect the unexpected; and they should know that no matter how much is done to mitigate the risk of an accident, it can’t be eliminated completely. For less than $300 a year, $1 million of personal liability insurance can cover that exposure. When compared to all other types of insurance, it is, dollar for dollar, the very best investment one can make for peace-of mind. For an additional $75 to $100 a year, you can add another million dollars.
Umbrella liability policies are inexpensive because the insurers expect that your homeowners and auto insurance will cover most liabilities. However, all it takes is one freak accident that results in a string of medical bills with some pain and suffering thrown in to see a settlement reach seven figures. For $300 a year, why would you think twice about covering that exposure?
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