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Personal Liability: When is it time for an Umbrella Policy?

How Much Personal Liability Insurance Do You Need?

Heidi L. Heineke, Independent Insurance Agent

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 can get the public’s blood boiling, such as a famous 2005 case where a judge – yes, a judge – sued a small, family-owned dry cleaner 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. And small business lawsuit claims can come from both customers and employees. 

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 coverage 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. Heidi L. Heineke, our insurance specialist can help you examine your current coverage and potential risks to determine how big your umbrella needs to be.

Securities offered through Securities America, Inc., a Registered Broker/Dealer, Member FINRA/SIPC.  Advisory services offered through WealthPLAN Partners. Welch Financial Planning, LLC, WealthPLAN Partners, and the Securities America companies are separate entities. Welch Financial Planning, LLC - 1790 38th St., Suite 205 Boulder, CO 80301.  Written by Securities America for distribution by Tron D. Welch, CFP®, MBA, AIF®