Protect Your Family's Wealth With Adequate Liability Insurance

When most of us think of insurance, we tend to focus on policies concerning the repair and replacement of our real and personal property. These coverages are critical because they directly impact our financial security, and the extent of damage in these scenarios is quantifiable—allowing for accurate cost estimates for rebuilding or replacing assets like homes, fine art and jewelry.

In contrast, liability exposure remains less defined—and recent court cases underscore this uncertainty. This ambiguity becomes even more pronounced when affluent and high-net-worth individuals are involved because their wealth can make them targets of claimants and attorneys. If you're considered a high-net-worth individual, this makes it essential to ensure all your liability exposure is adequately covered. Typically this is done with an umbrella policy.

The importance of personal liability policies

For insurance purposes, liability refers to the financial exposure you'd face if found responsible for causing injury or damage to others or their property. Various insurance products address these risks, with some bundled alongside property coverages like auto or homeowners insurance. Excess liability and umbrella policies are well-known, but other insurance offerings to protect an individual's financial picture are lesser known and continuously evolving.

In most cases, an umbrella policy covers legal defense costs and payouts to claimants. Personal umbrella policies can be particularly important for affluent and high-net-worth individuals who've spent considerable time accumulating their wealth.

Surprisingly, many clients haven't reviewed their insurance coverage for years, often maintaining outdated umbrella policies purchased when they first opened their businesses. It's common to discover that an outdated or inadequately structured umbrella policy covers only a fraction of someone's assets. This oversight can leave a substantial portion of their assets vulnerable to claims and lawsuits because a court decision isn't limited by the amount of insurance purchased but rather by how much wealth may be targeted by the attorney or claimant.

A well-structured insurance program designed with an insurance specialist and financial professional should help you assess the need for these policies and ensure they work seamlessly together to avoid any coverage gaps.

Identifying key liability exposure

While anyone can potentially face a liability claim in their daily lives, some factors can heighten this risk. Common causes of substantial liability claims include dog bites, accidents in swimming pools, serving alcohol at gatherings, issues with domestic help or in-home childcare, dangerous driving habits—and more recently libel and slander, both in person and online through social media. Additionally, serving on boards of directors where the entity doesn't provide directors and officers insurance demands careful consideration.

There are practical measures that may be able to help prevent liability claims altogether. It's crucial to be aware of ways to enhance safety in your home and interactions with others. Your insurance agent can offer ideas and solutions, emphasizing that the best claim is the one that never occurs. It's essential to remember that even if found not liable, you'll still need to fund your legal defense, and insurance policies can support this expense.

Coordinating primary and umbrella coverages

Many types of insurance coverage—including auto, home and boat insurance—often feature some level of underlying or primary liability coverage. Umbrella policies are designed to provide additional limits beyond these primary coverages or to address certain exposures, like libel and slander, which may not be covered by the primary policy. Ensure that the underlying coverage limits align with the start of the umbrella policy to avoid coverage gaps and personal financial responsibility for any shortfall.

Commonly, issues arise when assets like boats or secondary homes are insured by separate agents who may not be aware of existing umbrella coverage elsewhere. Typically, umbrella insurers require awareness of other policies to assess their additional exposure. Failure to notify them of other policies can result in declined coverage when a claim occurs. Consolidating all insurance coverage with a single agent can help prevent this unfortunate outcome.

Managing liability in employment situations

If you employ domestic staff or contractors directly for various household duties or for crew on your yacht or aircraft, it's crucial to consider two liability coverages:

• Workers compensation insurance, which covers employees injured on the job
• Employment practices liability insurance, which safeguards against claims of discrimination, harassment and other wrongful employment acts

These coverages are increasingly vital because these types of claims are on the rise. They can also be addressed within business insurance coverage if these employment types are operated for a business entity.

The evolving landscape of personal cyber liability insurance

The newest and rapidly evolving insurance coverage to consider is personal cyber liability insurance. This coverage is becoming an integral part of personal insurance programs to address a range of cyber-related exposures, including identity theft, cyber extortion, unauthorized online transactions, data breaches, online harassment and reputational damage.

It may also cover elements like legal expenses, identity restoration and incident management. Policies in this domain can be highly variable, with no industry standard yet established.

Tailoring insurance to your unique needs

All insurance policies, especially those protecting substantial assets, must be thoroughly understood and tailored to your specific requirements. Terms and conditions can vary among insurers, making alignment with your unique needs and careful evaluation essential. Collaborate with your insurance specialist and financial professional to establish a robust insurance program that suits your individual circumstances.