A few weeks ago, I told the story of a dog bite that could have cost the family several thousands of dollars if not for their umbrella insurance. Yet, I still had people tell me that everything we do is dangerous. Driving is risky. You could get hurt on a recreational vehicle. You could drown in a pool. Your identity can be stolen online. However, we continue to do these things because they are part of modern life. We let our children drive to school at 16. We enjoy riding four-wheelers and lazy Saturdays at the pool. We keep in touch with distant friends and family through social media, all while being cautious for our own personal safety.

Just because you’ve accepted a certain amount of risk in life, doesn’t mean you don’t need an umbrella personal liability policy. State laws and mortgage companies require us to have insurance on our cars and homes to protect us in case of an accident. While many claims are within the limits of your auto or homeowner’s insurance policies, there are times when a claim will far exceed the coverage or there are gaps in coverage.

A personal umbrella policy provides a higher limit of liability to protect you against catastrophic liability loss. The policy usually kicks in when your homeowner’s, auto, or watercraft liability limits have been exhausted. It also covers bodily injury, property damage, and personal injury, including libel, slander, false arrest, and invasion of privacy.

Teen drivers are three times more likely to crash, and 14 percent of all deaths in automobile accidents are from teen drivers. In one example from Chubb Group, a teen driver was speeding and lost control of the car. It jumped the embankment and struck a building, severely injuring the passenger. The client’s Chubb auto insurance policy paid $500,000, and the excess liability policy paid an additional $5 million to the injured passenger.

In another example, a teen successfully sued her classmates and their parents, accusing them of bullying and humiliating her in a Facebook group. The teenagers and their parents needed to hire lawyers to defend these cases and money to pay for the judgments against them. A standard homeowner’s insurance policy may not cover these kinds of lawsuits. A lawsuit resulting from a social media post would typically allege inflicting emotional distress, defamation, or similar charge; however, a homeowner’s policy generally only covers bodily injury or property damage done to someone else. A personal umbrella policy often contains a personal injury clause that protects the homeowner from defamation, libel, or slander lawsuits.

Think about how often you see a friend or acquaintance take their rants and scathing reviews to Facebook when they think they’ve been wronged. If the target of the rant or negative business review sees it as defamation, a lawyer could defend a libel claim since the post is in “writing,” and hundreds of people saw it. The original poster could be sued for millions of dollars.

Without excess personal liability coverage, lawsuit judgments could put your current assets as well as future earnings at risk —a significant derailment of your financial future.

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William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.


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