In our last article we discussed some of the basics of liability coverage. We discussed the need for primary coverage through homeowners and auto policies and recommended additional coverage by means of an umbrella liability policy.

We are often asked the question: “Who needs an umbrella liability policy.” As litigious as our society has become, we believe that all but those of very modest means should have an umbrella liability policy. We feel this way because not only do you need to protect your current assets but also your future income. Even if you don’t have a large portfolio or a big house, a law suit could have significant impact on your future earnings.

Affluent individuals need significantly more. They likely have second homes, boats, employ domestic staff, travel frequently and perhaps maintain a high public profile. All of these factors increase their liability exposure and increase the probability of a lawsuit.

Those who operate home-based businesses and have children who drive a car or surf the internet have increased exposure. Serving on the board of a non-profit organization adds to your liability risk. An affluent individual could easily need $5 million to $10 million in coverage, or more.

There is no easy way to determine how much excess liability coverage you need. It will depend on the value of your physical assets (homes, boats, cars, and personal property), your investment portfolio, future earnings and potential inheritances. And, the legal environment where you live can also have an impact on your risk exposure.

In selecting an insurer, we suggest you check with several providers including an independent agent. Find out what excess liability limits are available. Check the financial rating of the company by going to the web site http://ambest.com . Ask about how the company handles defense costs and access to legal counsel.

Some facts from a presentation by Stacy Silipo, Strategic Development Manager for Chubb Personal Insurance at the Financial Planning Association of Michigan’s recent Fall Symposium, help put the need for liability insurance in perspective:

•“Personal lines lawsuits comprised $82.5 billion of the $219 billion of tort costs
in 2003
• One of every six jury awards tallies $1 million or more.
• The 6th largest verdict in 2004 was larger than the 1st largest verdict in 2003”

As you can see, risks are very large and they are growing. Make sure you review your liability coverage with your insurance representative or financial planner in the near future. It will be time well spent.