Accidents happen. And when they do, personal umbrella liability insurance provides a safety net.

Your Money

April 24, 2005|By NOVELDA SOMMERS

Spring is here, and you're feeling festive. So you decide to have the neighbors over for a barbecue. It's all fun and games until someone is hurt on your property, loses his ability to earn income and wants yours.

Will your insurance cover it?

"Let's say somebody trips and falls, or worse, they jump in the pool and become a paraplegic," said Cary Carbonaro, a certified financial planner in New York and Florida. "You're getting sued.". Those three little words could end up costing you a lot of money. It doesn't make any difference if the injured parties were your friends or were willingly at your home and were hurt because of their own carelessness. You could wind up with a judgment against you.

Carbonaro said that's why she considers personal umbrella liability insurance a basic building block for a sound financial plan. It's additional insurance that costs $200 to $300 a year per $1 million in coverage, depending on risk factors. It piggybacks on your auto, watercraft, home or renter's policy but costs a small fraction of what those policies cost.

Homeowner and auto policies generally cover as much as several hundred thousand dollars in liability, although they can start in the tens of thousands. Lawsuit judgments or settlements can be in the millions. Most umbrella insurers require underlying insurance of at least $100,000.

Personal finance experts say our society's litigious nature is the reason umbrella liability insurance has become essential. There's the growing likelihood you could get sued, combined with higher jury awards.

The number of million-dollar jury awards increased 13 percent from 1997 through 2003, according to Jury Verdict Research, and rising medical costs might be partly to blame. A bad car accident could cost hundreds of thousands of dollars in hospitalization and rehabilitation costs.

The 13 percent increase does not account for awards that were knocked down on appeal.

Personal umbrella liability policies typically pick up where basic liability insurance stops and cover up to a million dollars or more in claims, said Karen Kaczanowski, senior vice president with the Chicago practice of the brokerage firm Marsh's Private Client Services.

For those with very high net worth, a few companies offer up to $100 million, she said.

People who are perceived to have deep pockets are in more danger of getting sued, no matter what the truth is, she said.

Donald Whalen, a financial planner in Alpharetta, Ga., said he increased his recommendation for clients' personal umbrella liability coverage to $2 million from $1 million last year. He estimated that a $1 million policy would cost a few hundred dollars a year and that a $2 million policy's premium would be about $500, depending on risk factors.

The average homeowner policy costs about $600 a year for $100,000 to $300,000 in coverage.

A personal umbrella liability policy "is not much more expensive, and it gives you peace of mind in this litigious society we live in," Whalen said.

If you are underinsured, the injured party could come after your savings or your future earnings to make up the difference, he said.

There might be other ways to protect assets, he said. A recent Supreme Court ruling that affects 15 states and the District of Columbia shields individual retirement accounts from creditors. The court said IRAs cannot be seized because they are like pensions, not like savings accounts.

Before that ruling, Whalen said, many highincome workers, such as doctors, were holding as much wealth as possible in 401(k)s so the money couldn't be taken by lawsuit or bankruptcy.

Now, IRAs are another option for shelter.

"It's a good thing to do anyway, save for retirement," Whalen said. "By having your money in retirement savings accounts, you're protecting yourself."

Generally, your insurance company will refuse to back you up in cases where you are criminally negligent or intentionally inflict harm.

"If you trip on my property, it's covered," said Jeanne Salvatore, vice president of consumer affairs for the Insurance Information Institute. "If I put my foot out, it's not."

Novelda Sommers is a staff writer for the.

Daily Press, a Tribune Publishing newspaper in Newport News, Va.

How much is enough?.

"That's the $20 million or $50 million or $100 million question," said Karen Kaczanowski of the Chicago practice of the brokerage firm Marsh's Private Client Services. "Only the client can decide, after answering some very pointed questions from their financial advisers."

Marsh recommends that clients answer these questions when determining the appropriate amount of coverage:

What will the value of your assets be in the future?

Are you involved in activities that put you at greater risk?

Do you have teenage children, and do they drive?

Do you entertain often at your home?

- Novelda Sommers.

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