One of the many risks that high-net-worth individuals may face is car accidents, injuries to others, and other liability issues. When onboarding new clients, this seems to be one of the most overlooked or missed areas of a financial plan. I’m not a property and casualty agent, but we discuss insurance coverages during our meetings.
For individuals with assets that need protecting, personal liability coverage is a necessity to protect these assets.
Personal liability coverage, part of a homeowner’s policy, covers accidental injuries and property damage that you or other members of your household do to others. It typically covers the following:
- Injuries you and your family cause away from the home. Ex: You or a member of your family accidentally injures someone at the community park.
- Injuries on your property. Ex: Someone slips and falls at the swimming pool in the backyard.
- Injuries caused by your pet. Ex: A dog jumps on someone walking by and injures them. (This exact situation happened with a client of mine. Unfortunately, the dog injured a person and liability coverage was in place to cover the costs associated).
- Damage caused by someone in your household. Ex: Child throws a baseball through the neighbor’s window.
Regarding all these scenarios, liability insurance would pay for lawsuit judgments, settlements, and legal bills up to your liability limits. The major risk here is that you’re underinsured and then need to pay for damages out of your own pocket. This can completely change your financial situation. We always believe it won’t be us until it is. That’s why insurance protection is so important.
Outside of your homeowner’s policy, liability coverage is recommended as a part of your car insurance as well. Auto liability insurance pays others when you’re at fault for a car accident that causes bodily injury or property damage. Auto liability insurance covers two things:
- Bodily injury to others which handles medical bills and lost wages for people in another vehicle up to your liability limits.
- Property damage which handles property damage up to your liability limits. An example here would be crashing into a new Mercedes and totaling the car.
Due to homeowner and auto policy coverages typically having maximums, this may not be enough coverage if you cause an accident that results in extremely expensive repairs, medical bills, or a lawsuit payout.
This is where umbrella insurance comes in. Umbrella insurance provides additional coverage beyond the liability insurance already in your auto, homeowners, and watercraft insurance policies. This coverage is used for expensive situations where medical bills, repairs, or lawsuits exceed your limits in auto, homeowners, or boat policies.
Umbrella insurance kicks in when you reach your “base" liability limits for a policy on your home, auto, or boat coverage. It’s used for asset protection because it can prevent you from losing assets in order to pay for a lawsuit or other significant expenses.
Here are some examples of when umbrella coverage could cover you:
- A serious auto or boating accident.
- Dog biting someone.
- Drive car into building.
- Accidental injury.
- Your child is sued.
- Child accidentally damages someone’s property.
- You are on the board of directors of a charity and are sued for a board-related issue.
Examples of circumstances that could increase your chances of being sued include:
- You have kids living at home.
- You have a swimming pool or trampoline.
- You have pets.
- You host large gatherings.
- You own rental properties.
- You serve on a charitable board.
Lastly, when selecting the right coverage, you need to consider the following:
- Value of your assets: It’s typically recommended that your policies should cover your entire net worth. This is generally what you stand to lose in the worst-case scenario.
- Potential future income loss: Your future income could also be at risk in a lawsuit.
We all believe these situations won’t happen to us until they do. To protect your family and your assets, proper liability coverage is needed. I’m not a property and casualty insurance agent but this isa significant part of a comprehensive financial plan. During the planning process, we can work with property and casualty agents to help ensure proper coverage for clients/friends. I always recommend consulting with your property and casualty agent to help ensure your family and assets are protected.
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