High-net-worth (HNW) individuals work hard to build their wealth. But a lawsuit, even a seemingly unfounded one, could threaten a HNW family’s financial security and their reputation if adequate and comprehensive insurance protection is not in place.
In today's litigious environment, wealthier individuals are unfortunately often more susceptible to lawsuits due to a perception of "deep pockets."
Imagine this: Your teenager recently got his driver's license, and you allowed him to use your new SUV to take his friends out for a drive and fast-food. Unfortunately, while speeding around a corner, he lost control of the vehicle and crashed into a tree. The car is severely damaged, and some of his friends are injured. He calls you, assuring you he's okay, but one of his friends is being taken away in an ambulance, and the police are present at the scene.
You promise to get there as quickly as possible. As you rush to the accident site, you can't help but worry: How serious are the injuries of the friend in the ambulance? Who is it? Will there be legal consequences like lawsuits? And what about your insurance coverage? Are your policy limits sufficient to handle potential lawsuits, especially if there are multiple claims or a significant one?
In such situations, having comprehensive personal umbrella insurance coverage becomes invaluable. For high-net-worth individuals, not having this additional layer of protection or lacking adequate coverage could mean facing substantial financial burdens, potentially having to pay millions out-of-pocket, in the aftermath of unexpected accidents like this one.
An umbrella policy, like excess liability protection, is an additional layer of coverage that provides protection beyond the liability insurance that already exists within primary insurance policies (such as homeowners’ insurance, auto insurance, yacht insurance, etc.). It acts as a financial safety net, serves as valuable asset protection if someone brings a lawsuit against you, and it can help to cover expensive medical bills or repairs that exceed the limits of your primary, or “base,” insurance policies.
Generally, you’ll need to have a minimum level of home and auto liability insurance in place to purchase an umbrella policy. This is your base. Umbrella insurance kicks in after you have reached the liability limits on your “base” policies.
A personal umbrella policy provides an added layer of crucial protection for a range of more significant and unexpected liabilities. Members of your household (spouse and children) are generally also covered by your umbrella insurance policy.
An umbrella policy can help provide peace of mind and extra financial protection. With rising medical costs and increasingly large jury verdicts, even a seemingly minor incident can have significant financial repercussions. In today's environment, you can quickly exhaust your coverage limits.
As you become more successful, having adequate umbrella coverage limits becomes a critical component of a comprehensive insurance program. Should you or your family face legal action, you can be held personally responsible for all settlements and/or jury awards in excess of your limits.
HNW lifestyles come with significant risks and a greater potential for loss. Assets and activities common with HNW families such as high-performance vehicles, pools, yachts, hosting large parties, allowing young operators to drive luxury vehicles, providing teenagers access to second homes, adventure travel, and more, increase your exposure to risk and liability.
With substantial wealth comes the likelihood that litigious individuals can easily search online to determine your wealth status and the likelihood that “deep pockets” exist, opening the door to a claim pursuit with an eye towards litigation. There are many lawyers ready and willing to optimize maximum payouts.
In extreme cases, a plaintiff, through a court award, may garnish your potential future wages and assets and even put a lien on your property. An umbrella policy or an excess policy adds layers of protection for safeguarding your assets from unforeseeable circumstances.
Many people wonder how to determine the right umbrella limit for them. The answer is, “it depends...” A smart approach starts with an accurate assessment of your net worth but doesn’t stop there. It also includes evaluating situations that can make you and your family more prone to claims of wrongdoing and litigation. Considering the following questions can help you determine the excess limit amount that will best protect you:
If a serious accident occurs and the parties can’t agree on a settlement, a suit will be filed, and you may have to go to court. Litigation can be lengthy, time-consuming, and expensive. If the case does go to trial, a jury will typically take into account four economic damages to determine a payout amount:
These losses are added together to determine the jury award — the amount the at-fault party will have to pay. If your umbrella insurance policy can’t cover the cost, the court may consider your income and net worth, and order a transfer of assets. In extreme cases, the court may garnish your future income and wages until the total is paid overtime.
Laws, statutes, and procedures vary state by state — your liability and exposure may increase depending on where the accident happened. Consult with legal experts to understand the specific laws in your state.
Umbrella policies are a safety net for the unexpected, but what does this look like in real life? Here are some real-world examples of how umbrella liability coverage protected high-net-worth individuals from having to pay over a million dollars out-of-pocket.
Awareness, thoughtfulness, and preparation are key. Consider taking these proactive steps to reduce the chances of future liability claims. Also, by taking these measures and minimizing your losses, you improve your risk profile, which could help you secure higher limits if needed.
Many people think that serious accidents and catastrophic losses will never happen to them. Think again and be prepared. In today’s environment – with frequent lawsuits and rising costs – umbrella coverage is more important than ever. It is paramount to work closely with a trusted insurance advisor to develop a comprehensive insurance strategy that includes excess liability coverage tailored to your specific needs. An expert advisor can offer experience-backed advice on limits and the types of policies best suited for your lifestyle.
At times, securing sufficient excess limits may mean working with multiple carriers and layering policies. An expert advisor can help you secure and coordinate layered coverage. It is also important to ensure your policy has defense coverage beyond the liability limit. Should an accident occur, your trusted advisor, working together with their in-house claim experts, can advocate for your interests, maintain discretion, and keep you informed at every step.
As your assets grow, it is important to continue to reassess your limits to make sure you maintain adequate coverage. Reviewing your coverage and assets annually will ensure you are less likely to be caught without proper protection. The peace of mind umbrella coverage offers is priceless, and a comprehensive insurance strategy is essential for protecting your hard-earned wealth. The private client risk advisors at Risk Strategies are ready to help you secure the insurance solutions you need.