Protection for a Rainy Day

The average personal injury jury award in 2006 (the latest year for which statistics are available) was $301,000 for vehicular liability cases and $547,000 for premises liability.¹ These numbers might not sound very high, but consider them in light of the limits of your auto and homeowners insurance policies.

Liability coverage limits of $300,000 for auto policies and $500,000 for homeowners policies are fairly typical. Note that both of these limits are less than the average jury awards for the respective types of liability cases.

Fortunately, an umbrella liability insurance policy can help close this gap, usually for a reasonable cost.

An umbrella policy takes effect in the event that the limits of your primary insurance policies are exhausted. To qualify, buyers must generally purchase the maximum liability coverage available on their auto and homeowners policies, which serve as the deductible for the umbrella policy. If policyowners are ever found liable for an award greater than the limits on their primary policies, the umbrella policy can help pay the difference.

Umbrella policies typically charge a few hundred dollars a year for $1 million of coverage.² They usually include coverage for liabilities excluded on standard auto, renters, and homeowners policies, such as libel, slander, invasion of privacy, defamation of character, and other personal injuries.

The appropriate amount of coverage for your situation will depend on personal factors. The first variable to consider is whether your net worth is more than your existing coverage limits. If so, your home, personal assets, retirement savings, and even future earnings could be vulnerable in the event you are hit with a judgment that exceeds your current insurance coverage.

You may also want to consider your exposure to risk. If you have teenagers who drive, if you employ unlicensed workers, if you own a pool or a dog, or if you entertain frequently in your home, you may have an increased risk of being the target of a personal liability lawsuit.

It’s true that the risk of being sued for personal injury is fairly low, but the cost of having adequate insurance coverage is also fairly low. If you were ever sued, you might wonder how you could afford to live without the appropriate protection.

1–2) Insurance Information Institute, 2008

This material was written and prepared by Emerald Publications.
© 2008 Emerald Publications