Umbrella insurance saved Bill Clinton big bucks; why you need it too
Apr 08 '00
Yes, I know, insurance is a burden. My state, New Jersey, consistently has the highest auto rates in the country. A neighbor just told me he is going to exercise more, eat healthy, and cancel his health insurance policy, because he is tired of straining to try to keep up with his rising health insurance premiums. I have decided to tell the spouse to stop writing checks to the specialty insurance company we had to turn to for coverage on a manufactured home we use in the summer; it is just too much money. But, one check I write happily is the check for umbrella insurance coverage. It is a small check that buys peace of mind.
What is it?
Umbrella insurance is over-and-above coverage. The purpose of these policies is to cover personal liability claims in excess of the amounts covered by auto and homeowners policies. Generally, umbrella insurance kicks in as the result of a lawsuit arising from an accident.
The $200,000 or so in liability coverage you purchased under your automobile or homeowners policy will not go very far in defending a lawsuit, or in paying out a settlement or verdict award. Umbrella insurance exists to cover the gap between that coverage and the coverage you will need in case of a large judgment.
Umbrella insurance policies generally are written in increments of $1 million, and are surprisingly affordable. When we moved five years ago, we needed a new homeowners policy and our agent suggested that we add an umbrella policy. The cost for $1 million in coverage was $150 a year. We signed up without hesitation. It seemed a very small price to pay for peace of mind.
Can you be sued?
If you own a pool, a trampoline or a dog, experts say you absolutely need umbrella insurance. If you own an edgy cat, collect swords, have a child who plays football, or tend to bump into things in the supermarket parking lot, you need umbrella insurance too.
Look around your home and yard, peer deeply into the eyes of your Siamese cat, trace your children's activities for the past week, think of the close calls you have had while driving. If you see any potential that any human, or prize-winning animal for that matter, could in any way come to grief at the hands of anything you own or any creature for whom you are responsible, you might want to consider umbrella insurance.
Beyond straightforward physical injuries, umbrella insurance can offer protection for all sorts of damages. According to the Washington Post, as quoted by insurance.com, President Clinton used his umbrella policy to pay more than a $1 million of his defense in the Paula Jones sexual harassment case. Some umbrella insurance policies also cover actions of members of a board of directors. This is important because courts are now holding boards responsible in all kinds of lawsuits.
Given the range of objects, dependents and actions that could expose you to legal action, it is no use trying forestall a lawsuit by accident proofing your home and family. Lawsuits tend to come out of thin air. In a Epinions review on homeowners insurance, I wrote about how our young son was sued years after a child with whom he had been playing during school recess was hurt on the playground. We had never even heard about the incident until a sheriff showed up to serve papers. There is no way we could have anticipated, or protected ourselves against, a playground accident. As a result of this incident, and of working in law firms and seeing the tremendous fees involved in even the most minor lawsuits, I think everyone living in a litigious society like ours could use the peace of mind an umbrella policy brings.
Are you a good lawsuit target?
When an individual decides to sue after slipping on your sidewalk, being bitten by your poodle, getting in the way of your 9th hole tee shot, or being sideswiped by your Suburban, his attorney will hunt for deep pockets. Your assets, earnings -- and even future earnings potential -- will be scrutinized.
If you own a four bedroom Colonial in a prestigious town, a 38' sailboat, a big chunk of Microsoft stock, or an M.D. degree, you are well worth going after. Ratchet the assets down several notches, and you still are at least somewhat desirable game. The attorney will try to get the lion's share of his settlement from other players, perhaps the crew who put down the sidewalk or the golf course's architect, but he still will try to shake a few bucks loose from you. And while these dollars might not mean much in terms of the overall settlement, to you they could mean the loss of a home, savings and part of a paycheck for years to come.
Look over your assets. If you have anything you don't want to lose, anything that would take years to replace, get an umbrella policy.
Buying an umbrella policy
Since umbrella policies cover the gap between automobile and homeowners policies and large legal awards, they often need to be coordinated with those policies. Many insurers will not sell you an umbrella policy unless you carry your automobile and homeowners policies with them.
Some policies cover legal expenses, and some do not. Check, and cover legal expenses if you can; they can be exorbitant. Every policy has exclusions, read them carefully, because they can put large holes in your safety net. If damage caused by certain breeds of dog is not covered, for instance, and you own that dog, the policy is not for you.
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