A few things to consider when buying Excess/Umbrella
The Umbrella policy, and its counterpart the Personal Excess Liability, act as protective and additional coverage limits over all other liability personal liability coverage’s such as auto, homes, boats and ATV’s. Both offer an added layer of protection, but there are some significant differences to consider when purchasing these products.
An Umbrella is often a better than an Excess policy as it is broader in the personal injury coverage than the underlying policies. Some good examples of items that are covered under an Umbrella policy are shock and mental anguish, and not included on an Excess policy. And Umbrella’s coverage is frequently offered worldwide, where an Excess follows your home and auto coverage which are usually limited in their policy territory.
Perhaps the biggest difference with an Umbrella policy is when it comes to young adults. Any young adult over the age of 18 who is now, or will be, affluent should purchase an Umbrella policy now. In the event of an award in excess of insurance proceeds, the asset of the estate may be attached, particularly at the point assets are distributed to beneficiaries. The key point is if a young adult is involved in an event after 18, and receives assets in his/her mid-twenties, the earlier judgments can attach to this disbursement at that time. You may well have adequate limits for your family, but once your children and guardians reach the age of consent, they are open to independent legal action against them now and into the future.
How much is enough in the area of personal liability limits? The rule of thumb is to purchase and Umbrella policy equal to your assets, but that is oversimplified. A more sophisticated formula I have developed is if your net-worth is over $500k, buy a minimum of $1mm, and if over $1mm then purchase $2mm and over $2mm purchase $5mm, etc. If your net worth is in excess of $10mm purchase $10mm and leaven that for additional limits with exposure information: underage drivers, public figure, multiple homes and cars in varied jurisdiction consider $20mm. It is the rarest of cases that there exists a need beyond $20mm for a single family entity, due to the small number of adjudicated cases in excess of $10mm within the last decade.
About the Author
Bruce MacDougall is a Senior Vice President in the Property & Casualty group at WGA and leader of the Private Client Group. His responsibilities at WGA include developing relationships and serving as a resource for WGA clients in all areas of property and casualty insurance brokerage and risk management consulting.