We recommend that our clients conduct an annual insurance review with their broker or agent, to be sure they are properly covered against a variety of risks. Particularly, families of high net worth should consider an excess liability (or umbrella) policy, which pays for judgments and defense costs for incidents which occur where the individual is found liable (i.e. are legally obligated to pay). Excess liability policies offer an added layer of coverage to sit over the underlying liability on your home, watercraft, and auto policies. They can offer additional benefits that are particularly relevant for our clients, including coverage when traveling worldwide, renting vehicles, sitting as not-for profit board members, or in the unfortunate situations of having their identity stolen or being a victim of credit card fraud.
Of particular importance for families who employ staff such as nannies, housekeepers, caretakers, or personal assistants, excess liability policies can provide Employment Practices Liability Insurance (EPLI). For more information about best practices related to employing domestic staff, please refer our previous blog post.
Whitney Mullare, Assistant Vice President at Marsh, points out another example of the potential benefits of excess liability insurance – uninsured or underinsured motorist protection. This coverage helps pay for medical bills and lost wages when someone is injured by a driver who does not carry adequate insurance and would be especially important to have in place if the primary earner in a family was severely injured. Each state sets its own rules for the minimum limits of insurance that drivers are required to carry. Oftentimes the state-mandated limits are far lower than what we would recommend, and would not fully cover severe injuries and/or significant property damage, which requires the victim to respond with their own coverage. The statistics vary by state, but the percentage of uninsured drivers on the roads can range from 4% to as high as 24%.
Aaron Hertsgaard, Strategic Partnerships Manager of Chubb, recently shared some factors to consider when deciding how much excess liability insurance you should purchase:
- Do you own a home or multiple homes?
- Do you entertain often?
- Do you drive often/far distances or have teenagers who drive?
- Do you have kids who use the internet?
- Are you a public figure within the community or beyond?
- Do you employ domestic staff or have vendors frequently working on your property?
- Do you operate a home-based business?
- Do you sit on the board of a non-profit organization?
Consider the example of a Chubb client who was injured while performing a simple household task – a man taking out his garbage was bitten by a neighbor’s dogs. During the ordeal the client sustained a back injury and suffered severe lacerations and was eventually awarded $8 million by a Florida jury. The neighbor did not have adequate liability limits and therefore had his personal assets seized in order to cover the damages awarded.
A general recommendation is to carry coverage that is at least equal to your net worth. In certain cases, families may choose to either increase or decrease coverage, based upon a variety of factors. The questions above are a good starting point, but families should consider not only their current physical and investable assets, but also future earning potential, and ultimately, how much of their portfolios they are willing to self-insure. Successful individuals may be seen as targets if a case does result in litigation, so it is prudent to have adequate coverage in place based on your family’s unique circumstances and risk profile. The cost of the insurance is relatively low, especially in relation to the potential loss.
Please contact me or a member of your JDJ team for assistance with an insurance review or for more information about any of the topics covered in this post.