An umbrella on a stone stairs

Why Umbrella Insurance Is Key in Asset Protection

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Today’s society is litigious, and jury awards for injuries over a million dollars are no longer noteworthy, experts say.

That’s why umbrella insurance can play a crucial role in asset protection.

“Every person needs an umbrella if they own a home, have regular income, or if they have assets and investments,” Brook McGuire, specialty strategy lead at Safeco Insurance, told insurance industry publication Rough Notes.

“Anybody who drives needs an umbrella policy,” McGuire added. “More than 80% of umbrella claims are the result of auto accidents, and it doesn’t have to be drunk driving or going the wrong way up the interstate; it could be backing into an elderly person or toddler in a parking lot or causing a multi-car collision. There are a lot of ways that you can very rapidly get to $250,000 to $500,000 of bodily injury off the auto policy and pierce the umbrella.”

Personal policies can have two types of umbrellas: excess liability and umbrella insurance. 

While they are similar, excess liability only covers losses covered by a primary liability policy, such as home or auto. 

A true umbrella policy provides broader coverage, and in some cases, will cover claims that are not included in the underlying policies. That additional coverage might consist of auto coverage for anywhere in the world or coverage for libel or slander claims.

How much is enough umbrella insurance? 

In a 2012 ACE Insurance survey of high-net-worth families, 47% of the respondents had a high level of concern about being sued for auto accidents. However, the report’s authors said those families underestimated both the breadth and degree of other risks, including employment practices liability, directors & officers liability through charitable institutions, and dog bites, among other risks.

“Given recent liability verdicts and settlements, many people face financial exposures well in excess of their insurance limits. Truthfully, the bulk of defendants are underinsured,” at that time Jeffrey O’Hara, a senior equity partner in the law firm Clyde & Co., told ACE.

ACE highlighted some verdicts and settlements at the time, including:

  • A $49 million verdict in California resulting from a multi-vehicle crash in which a 21 year-old college student was left in a coma for one month and expected to require lifetime 24-hour care;
  • A $31 million verdict in California to two defendants who were swept off a boat and subsequently injured by its propellers.

Many people struggle to grasp how much of their assets are at risk from potential liability lawsuits and how insurance can shift that risk.

How much insurance should a high-net-worth individual carry to offset his or her liability? 

While there is no such thing as an average settlement because each liability case is different, Mr. O’Hara told ACE that $5 million in coverage would be considered minimally adequate, “and I emphasize the word ‘minimally,'” he added.