For high-net-worth individuals, the financial consequences of being sued can be serious business.
They typically have more assets at risk should be they be hit with a large court settlement or judgment and, while compensatory damages may be standard across the board, some juries have seen fit to punish the rich especially hard for their negligence.
But if you don’t think it can happen to you, consider these not-so-far-fetched scenarios:
• You agree to host a charity function at your home and one if your guests drown in the pool
• One of your teen children is involved in cyber-bullying a child and his parents sue your child and you for inflicting emotional harm.
• Your husband is at fault in an auto accident that kills two passengers in the other car and severely injures the other driver.
How a personal umbrella policy works:
The umbrella policy sits on top of the liability portion of your automobile, homeowners, or watercraft policy and it begins to pay when you’ve exhausted the limits of the primary policy.
You need to have specific minimum primary liability coverage amounts on the primary homeowner’s, auto, or watercraft policy to make sure there is no gap between when the primary liability policy stops paying and when the personal umbrella liability policy begins to pay.
There are two main types of liability that the policy will cover:
While your underlying automobile or homeowner’s policy would pay for many of these damages, the policies usually cap liability payouts at a certain amount – typically $500,000.
Any damages above that would come out of your pocket and assets unless you have an umbrella policy, which will kick in after your primary insurance limits are breached.
But the problem for high-net-worth individuals is that a typical umbrella policy is often capped at $5 million, and that may not be enough if a large judgment is leveled against you.
Ideally, you would secure enough liability coverage in a personal umbrella policy to ensure your wealth is not wiped out from a lawsuit, and there is a special line of umbrella coverage that is geared towards high-net-worth individuals who require higher limits.
Fortunately, there is a select group of companies that offer specialized personal umbrella policies that have limits as high as $100 million – and they can be customized specifically to your situation.
Why you need it
As a high-net-worth individual, you also have more liability risks than most individuals, since you are more apt to:
• Hold a charity function or other event at home
• Serve on boards of directors
• Have swimming pools, trampolines and personal watercraft
• Rent out properties
