Umbrella Insurance: Protecting you on Rainy Days

Courtesy of www.wje.com

Courtesy of www.wje.com

Let’s face it; we live in a litigious society. Whether you are a small business owner, a professional or managing your own family you need to take measures to protect yourself and your assets from potential lawsuits. Although this is surely not a comprehensive list, here are some measures you can use!

Umbrella Insurance: Umbrella insurance refers to liability insurance that is in excess of specified other policies and also potentially primary insurance for losses not covered by the other policies. When an insured is liable to someone, the insured’s primary insurance policies pay up to their limits, and any additional amount is paid by the umbrella policy (up to the limit of the umbrella policy). Personal umbrella policies are typically made excess of a person’s homeowner’s, boat, automobile insurance, etc. 1

It is especially important to investigate having an umbrella policy as your young teens begin to drive. The cost of coverage is typically inexpensive and can prove to be crucial in the event of an accident or untimely event. The cost to have an umbrella policy is generally far south of $500. In the case of my own family, umbrella insurance provided a significant benefit. In 2011, our son Jack was involved in a serious car accident that involved costly medical bills. The motorist that caused the accident had auto insurance, but was at the minimal coverage level. Thankfully the motorist also had umbrella coverage, which covered costs of the accident over and above the insurance limitations. Although we are still navigating through all of the nuances of the incident, the additional coverage has given us some piece of mind. More importantly, all of the individuals involved in the accident had a full recovery 🙂 .

An umbrella policy is very beneficial and advantageous. It provides $1 million or more of additional lawsuit coverage and also coverage of defense costs. Umbrella insurance will also cover lawsuits not covered by your car or home insurance. As mentioned previously, the cost of an umbrella insurance policy is quite minimal. Typically, the policy only costs $150 to $200 for the first $1 million of coverage, then about $100 for each additional $1 million. 2

Other forms of insurance that can help protect against litigation include, but not limited to:

General Liability Insurance: Every business, even if home-based, needs to have liability insurance. The policy provides both defense and damages if you, your employees or your products or services cause or are alleged to have caused bodily Injury or property damage to a third party. There are over a dozen other business insurance options available, but it is essential to have general liability insurance and it is often overlooked. 3

Professional Liability insurance: Professional liability insurance is a form of liability insurance that helps protect professional advice- and service-providing individuals and companies from bearing the full cost of defending against a negligence claim made by a client, and damages awarded in such a civil lawsuit. Professional liability insurance is required by law in some areas for certain kinds of professional practice especially medical and legal, and is also sometimes required under contract by other businesses that are the beneficiaries of the advice or service. 4

However, it is important to be cognizant that this type of insurance may be crucial for other professionals including accountants (CPAs, bookkeepers), individuals engaging in financial services (CFPs, CFAs), insurance agents, consultants, brokers and even some charities and other nonprofits. Lower cost options may be found by networking with business associations for which you as the business professional is affiliated. It’s important to do your homework! Feel free to contact with me with any questions or for more information on additional ways to protect yourself against litigation risk.

 

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Bibliography

1. Powerine Oil Co., Inc. v. Superior Court, 37 Cal. 4th 377. 2005.

2. What is umbrella insurance? Who needs it?. www.Bankrate.com. 

3. 13 Types of Insurance a Small Business Owner Should HaveForbes. 2012.

4. “Negotiating Your Law Firm’s Malpractice Insurance: How to Avoid Purchasing the “Never Pay Policy”The National Law Review. Arnall Golden Gregory LLP. 2012.

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