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Never Cancel Any Life Insurance Policy Without First Consulting A Life Insurance Professional
Always make sure that if you are canceling an insurance policy, you do so only after you have an inforce copy of the replacement policy. Consult an insurance professional licensed to do business in your state to review your specific situation before making any changes to your individual insurance policies.
Liability Insurance
While no law firm would even think of practicing in today’s litigious environment without a professional liability (Errors and Omissions) policy, lawyers often ignore more pedestrian personal non-practice liability. This type of liability insurance is called a Personal Liability Umbrella.
Personal Liability Umbrella
A personal liability umbrella provides liability coverage as an “umbrella” over the underlying limits of your homeowners’ insurance policy limits. For example: Your homeowners’ policy often will have $300,000 or $500,000 in liability limits. A personal liability umbrella would provide coverage of up to a specified dollar amount, say $1,000,000 “over” the limits of the regular policy. Note: Some insurance companies provide an additional amount over and above the underlying limit—in this case $300,000 or $500,000 plus the umbrella of $1,000,000 for a total of $1,300,000 or $1,500,000. Other companies provide a total limit of the amount of the umbrella (in this case $1,000,000). Depending on the driving record of the insured, the cost of a $1,000,000 umbrella ranges from $125 – $500 per year.
Why Do I need A Personal Liability Umbrella?
Simple…accidents happen.
Real Life Examples (From An Insurance Underwriter? Actual Filed Claims)
Scenario 1: The insured was involved in a serious auto accident in which the other party was at fault. The insured was seriously injured and the vehicle was a total loss. The injuries caused the insured to become permanently disabled and medical bills were over $200,000. The party at fault was an illegal alien with no assets and no insurance. The insured had $500,000 Combined Single Limit Liability coverage and only $75,000 uninsured motorist coverage. This left the insured with only a $75,000 settlement. He could have bought uninsured/underinsured limits up to the $500,000 limit of liability. In this case, the full $500,000 would have been paid to the insured. The cost to increase the uninsured limits would have been less than $50 per year. If the insured has a personal umbrella policy, it should also be reviewed to determine if it will “pay in excess” of the underlying uninsured motorist limit.
Scenario 2: The insured allowed his 17-year-old son to operate a Jet Ski on Lake Lanier. The boat owner’s policy had a $300,000 limit of liability. While operating the Jet Ski at a high rate of speed, the Jet Ski collided with another jet ski. The operator of the other Jet Ski was killed. The insured did not have an umbrella policy. The $300,000 was paid, but the insured’s personal assets were at risk.
Scenario 3: The insured (a retired attorney) hired a contractor to repair the back deck of this home. The contractor’s employee was paralyzed due to a fall that occurred while the employee was working at the insured’s home. During the claim investigation, it was determined that the contractor did not purchase a workers’ compensation policy. If a workers’ compensation policy had been in force, the injured employee would have been able to collect payment for his medical bills, which were in excess of $400,000, and be compensated for lost wages under the “no fault” workers’ compensation system. In attempt to recoup damages the injured employee sued the insured and the employer. The insured was able to be removed from the lawsuit in a motion for summary judgment; however he had to spend several days in depositions, hearings, etc. As a good risk management tool, homeowners should have service providers present them with a “certificate of insurance” that shows that the service provider has workers’ compensation and general liability insurance coverage in place.
Scenario 4: An attorney fell asleep at the wheel of his vehicle on the way home from the office. He crossed the median of the road and struck another vehicle. The driver was protected by an air bag safety system. The other vehicle was not as well protected and both passengers were killed. The driver is in therapy as a result of the accident. The other family has lost two of their members. Litigation resulted and recently the court decided that the driver (attorney) was at fault. The verdict was recently reached awarding the family $5,000,000. The Attorney felt that he was sufficiently covered with a $1,000,000 personal liability coverage. He had assets in the amount of $2,000,000 earned over 20 years in practice. The opposing parties have gotten all of his insurance proceeds, all of his assets, and an additional deficiency judgment in the amount of the remaining $2,000,000. They tried to garnish his wages to pay off the remaining amount. The attorney has filed bankruptcy. In addition to the personal remorse at being the cause of death of two other individuals, he is financially ruined. He has to start over while his other partners are shopping for second homes. As a social commentary, the family should be justly compensated for their loss and he should have paid the $600-1,000 annual expense for a $5,000,000 personal liability insurance policy to eliminate the RISK of operating an automobile.
Personal Liability Rules Of Thumb
• Contact your homeowner’s insurance agent and buy at least a $3,000,000 personal liability umbrella. If you make more than $500,000 per year then purchase a $5,000,000 umbrella.
• Make sure you have the same $3,000,000 or $5,000,000 in uninsured/underinsured motorist coverage on your auto policy. This feature will increase the cost of the policy.
• Confirm with your insurance agent that you have the proper “underlying limits” to make the umbrella active and in effect.
• Clarify any questions with the insurance agent to verify your coverage is in effect for both you and your spouse if married.
• Do not assume anything when purchasing insurance. Always ask clarifying questions.
The Fine Print Really Does Matter
All of the income and assets in the world will not protect someone with inadequate or improper insurance coverage given a large enough amount of loss. For example: The events of 9/11 were a tragedy for our nation. In a sideline…after 3.5+ years of litigation the owners of the Twin Towers were recently preserved from complete bankruptcy through a judge’s ruling that the insurance company must pay the terms of the liability/casualty policy for two separate events… not one single event. The owners of the Twin Towers had deferred the “catastrophic” possibility of building destruction to an insurance company that assumed the risk. The result of the ruling was that the insurance company must now pay $3.2 billion…twice. (Once for each occurrence).
Always check with a licensed insurance agent in your state to determine the applicability of these general insurance principles to your situation. This article is meant to be educational in nature. It is not meant to provide tax, legal, or other advice in your specific situation. Please consult with tax, legal, and insurance specialists regarding your specific situation.
