Does your insurance policy fully protect your personal assets from being lost if someone successfully sues you?
It’s upsetting to think that you might someday be the target of a lawsuit, but millions of them are filed each year in the U.S. Our legal system – while admirable in many important respects – doesn’t effectively discourage litigants from bringing frivolous lawsuits against innocent parties – especially those known to have personal wealth. Consequently, it’s important for individuals to take steps to protect themselves against being hit with a lawsuit, losing the case, and having their assets subject to a judgment. Having appropriate personal liability insurance is an effective way to do this, even if your lifestyle isn’t one that you consider to be particularly “risky.”
In New York State, having some level of personal liability insurance coverage is a prerequisite for performing certain inherently risky activities. For example, if you drive a motor vehicle registered in New York State, you’re required by law to have a policy that provides it. The same is true if you operate a business. Many professionals, including doctors, lawyers, and contractors, are required to purchase specialized insurance tailored to these trades. And while homeowners are not required to have property insurance (which includes some level of personal liability insurance), it’s often difficult to obtain a mortgage without having such coverage in place.
Is My Insurance Coverage Adequate?
Unfortunately, the insurance policies that many New Yorkers have in place may not be adequate to protect their assets if someone successfully sues them. According to New York State’s Department of Financial Services:
New York State law requires that motorists carry a minimum amount of liability insurance of $25,000 for bodily injury to one person, $50,000 for bodily injury to all persons, and $10,000 for property damage in any one accident. Mandatory “no-fault” coverage of $50,000 is also required.
Such minimal coverage may be insufficient to protect your assets if you’re accused of causing a very serious personal injury. Similarly, many homeowner insurance policies sold in New York State may contain gaps (called “exclusions” in the insurance business) or dollar caps that won’t fully protect you in every situation. Furthermore – in the age of social media – it’s far too easy to get swept up in an emotional “flame war” that may cause you to be accused of defamation. Some people have even been sued for posting critical business reviews on Yelp (these lawsuits frequently fail, often on constitutional grounds, but you’re still obliged to defend yourself in court, a process that’s both expensive and time-consuming).
That’s where personal liability insurance – often called “umbrella” or “excess liability” insurance – comes in. This kind of insurance policy is designed to fill any gaps in your existing coverage which – unless plugged – could cause your personal assets to become vulnerable to a successful litigant.
How Much Additional Insurance Do I Need?
Insurance consultants often recommend that you purchase a level of personal liability insurance equal to your current net assets. But if your lifestyle is inherently risky (for example, if you enjoy extreme sports, host lots of parties, operate recreational vehicles, or have an active Twitter channel in which you freely opine on issues each day), you may need more. Many excess liability policies max out at $5 million, but at least one company – Traveler’s – will let you buy up to $10 million of coverage.
If you’re interested in acquiring additional personal liability insurance, your first call should be to the carrier currently providing your auto and/or home insurance policies. Some carriers will not sell you additional coverage unless you already have a policy with them that includes base-level liability insurance. If you don’t currently have auto or home coverage, you have the option of buying stand-alone umbrella insurance policies from other carriers.
How Much Will I Have to Pay For It?
The amount you’ll pay for excess liability/umbrella insurance will be proportional to the level of your coverage. Typically, you’ll pay somewhere between $150 and $300 each year for each $1 million tier of additional coverage; your insurance carrier or insurance broker will be in the best position to price out a policy that’s adequate to protect your assets without breaking your budget.