insurance

Liability storm? Get an umbrella

You may think the insurance you likely pay thousands of dollars a year for keeps you well-covered, and it does -- until a trial lawyer comes calling. Then, you may wish you had a personal umbrella liability, or PUL, policy to supplement your coverage.

Never forget: You don't have to be a millionaire to be sued like one.

In today's litigious society, having adequate personal liability protection is crucial. Even if you're not wealthy, a lawsuit can deal a devastating blow.

You can be held liable for lots of things, such as causing a car accident, serving a guest in your home too much alcohol, or slandering an ex. You could even be found liable for someone's death from a falling tree limb if the tree is on your property.

But that's why we have insurance, right?

True. Most people have liability coverage on their auto and homeowners or renters insurance. It's mandatory in every state to have a minimum amount of liability insurance on your car to cover you for damage you may cause to property or people. Smash into a homeowner's fence and your insurance company pays for the damage. Hit a person and cause bodily harm and your insurer pays the medical bills.

A homeowners insurance policy also includes liability protection, covering you, for instance, against claims by people who are injured on your property. Liability limits generally start at about $100,000, but many homeowners purchase at least $300,000 worth of protection.

The homeowners policy may also provide $1,000 to $5,000 worth of no-fault medical coverage. If a visitor is injured in your home, she just submits the medical bills to your insurance company, which pays them without forcing your visitor to file a liability claim against you.

But what happens if you are insured up to $300,000 and you are successfully sued for a million?

Let's say you have half a million dollars in liquid assets, plus $300,000 equity in your home and you are successfully sued for $1 million as a result of a car accident. Your automobile liability policy has a $300,000 limit. Where is the remaining $700,000 going to come from? You guessed it: You're going to have to pony up your $500,000 in liquid assets plus $200,000 from the equity in your home.

That's when you will wish you had purchased a personal umbrella liability (PUL) policy, or excess liability policy.

Big protection, low cost

Few people believe they need them, fewer buy them and only a few of the few who have them make claims on them. That's why they are so cheap.

The umbrella policies -- so named because they protect you from whatever may fall down upon you -- can be purchased separately or you can buy them from the company that insures your car or your home, assuring you a break on the premium. They are usually sold in increments of a million dollars. They cost as little as $100 to $300 a year for $1 million worth of coverage and another $50 to $100 for each additional million.

A PUL policy provides protection against personal injury and property damage caused by you or members of your household, on or off your property. It can also provide protection against personal injury claims such as libel, slander, wrongful eviction and false arrest -- protection generally not provided by basic auto and homeowners policies -- and associated legal fees.

Chester Butler, owner of The Butler Company in Nashville, Tenn., says a PUL policy, for example, may cover the cost of defending yourself in a lawsuit brought against you by a burglar you shot in your home. Such an incident might not be included in your standard homeowners policy.

Each policy is different. Part of comparison shopping is checking out what a policy does and does not cover, as well as how much it costs, Butler says, adding that you should look carefully for any "exclusionary language" in the policy.

Who buys umbrella policies?

The rich and the reckless often are prime customers for umbrella policies, but the prominent are high up on the list, too. The more big toys you play with and the more assets you have -- a big house, stocks, a business -- the more you have to lose.

Butler says 25 years ago he recommended umbrella policies to just a few of his wealthy or prominent clients, but now, he says he tells everyone to get one. "If you have accumulated a lot you need protection," he says. "And if you haven't accumulated a lot -- but plan to -- you still need the protection. A 22-year-old truck driver may not have much in the way of assets now, but if he gets socked with a large judgment over a traffic accident he could have his wages garnished until he is 50."

Should you get such a policy? First, you have to consider your tolerance for risk. It's peace of mind. But also ask yourself if you're concerned about a probability or a possibility. You have to assess how vulnerable you are in terms of current and potential assets and how you live your life. How much coverage you need, experts say, depends on how much you have that could be seized to pay a judgment.

"It's a terrible thing, but for people who are more active, there is this perception that you have deep pockets," says Jean Salvatore, senior vice president for public affairs at the Insurance Information Institute. "People in certain professions are automatically assumed to be rich."

You should consider buying a policy if you:

  • Frequently have parties in your home and serve alcohol.
  • Operate a business or own rental property.
  • Give frequent interviews and are quoted by reporters.
  • Drive a lot of miles or have teenage children who drive.
  • Enjoy a lifestyle that gives the appearance that you are wealthy.
  • Own a dog, especially a pit bull, Chow or Rottweiler.
  • Have a lot of "toys,'' such as motorcycles, jet skis or all-terrain vehicles.

The best candidate is someone who just had a near miss, explains Butler. That might be a wealthy person who got in a car accident and caused damage or had a judgment entered against him that was covered by his standard policy, but just barely.

"It's a matter of assessing the risk," says Mitchell Kaplan, a Philadelphia-based attorney who represents insurance companies as well as individuals who sue insurance companies. "Many people with assets really need to protect themselves and this is an inexpensive way to limit that exposure." On the other hand, he adds, few plaintiffs actually go after someone's personal assets when claims exceed the standard policy limits.

"I have been practicing for over 20 years in Pennsylvania and New Jersey and I can only think of one situation where we went beyond policy limits and it was against a company, not an individual."

Christopher Cruise is a freelance writer based in Maryland.

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