Q: You discussed with another caller various ways of protecting one’s assets from lawsuits, including professional liability insurance such as physicians have. But wouldn’t a simple umbrella insurance policy work just as well? I have $2 million in umbrella coverage that costs me only $250 annually per million. Any problem with using that to protect against lawsuits?
Ric: That’s a good point. I didn’t mention it but probably should have — although in that caller’s context, I’m not sure it would have worked. It’s certainly advisable to have an umbrella liability policy.
I own one, and we routinely encourage our clients to buy them. Here’s why:
Your automobile insurance policy protects you in case of an accident causing injuries and damage. Your homeowner’s policy protects you in case your house burns down.
But what about other kinds of risks? What if the dog bites the mailman? What if a guest in your home falls down your stairs and lands in the hospital? What if your teenager says something stupid on the Internet, and you get sued for defamation? What if your child injures another student at school that results in your getting sued? The list of “what ifs” is long.
In many of those cases, your homeowner’s or automobile policy might not cover you — or not completely. For example, your auto policy might have a $500,000 limit on medical coverage. What do you do if you’re sued for $2 million?
This is why we suggest that people buy at least $1 million of umbrella protection. Some of our clients should have $3 million or $5 million, depending on net worth. The two positive things about umbrella policies are that they cover virtually everything and that they’re inexpensive — you said your $2 million policy costs you only $500 a year.
You can generally buy umbrella insurance only from the agency that sold you your homeowner’s policy. So make that phone call today. Thanks for bringing this up.