By Matthew P Simmons, CIC
Georgetown Insurance Service, Inc.
Silver Spring, MD
In many ways, standard insurance policies such as homeowners, automobile, and general liability can be compared to purchasing a rain coat and rain boots to help protect you from passing storms and rain showers. These passing storms represent the lingering threat of liability in today’s society and business world.
More often than not, the rain coat and rain boots are sufficient to shelter you from the world’s everyday storms. These could include a fender bender, a visitor tripping down your stairs, or the financial payout for a minor damage to a customer’s property.
However, your coat and boots wouldn’t stand a chance against a severe thunderstorm, hail storm, or blizzard. These severe storms could include a catastrophic car accident, an on-premises fatality, or long, drawn-out liability lawsuits.
While the likelihood of a severe storm occurring is low at any one time, the chance always exists. That’s why most people keep an umbrella in their car or by the front door. There is nothing worse than being caught empty-handed when the sky opens up. Umbrella insurance functions in the same way. It offers an additional layer of liability coverage above and beyond your standard policies.
You may be thinking….my standard policies’ limits should be suitable. Well, they might be, but do you really want to risk it? Are you sure? When assessing your risk, you should evaluate the value of your assets, your ability to pay out of pocket, and your surrounding risks. (For example: Do you have a large number of employees who could sue, service mainly high net worth clients, or have a pool, trampoline, or motorcycle?)
What might a personal liability situation look like? Well, we already discussed in a previous blog how your children can get you sued (Check it out here: http://www.georgetownins.com/5-ways-your-children-will-get-you-sued/) so let’s instead examine an average auto insurance policy. A typical policy will range from $100,000 to $300,000 in liability for bodily injury and $15,000 to $50,000 for liability for property damage. While that may seem like a lot, it can quickly run out. Imagine if you were at fault in a multi-car accident that caused serious injuries, emergency surgeries, and rehab. What if you crash into a Ferrari or Tesla? Could you afford to subsidize the rest of the cost? Once your standard policy hits its maximum limit, an umbrella policy would kick in and cover the rest.
How about a business liability situation? Let’s examine your standard liability policy. Most standard policies will have one million dollar limits. While this should certainly cover most claims, the number of multi-million dollar judgements is quickly rising. According to Sun Life Financial multi-million dollar claimants increased 68% between 2012 – 2016. Imagine if one of your customers was seriously injured at the workplace. Your business could get sued for the medical costs, lost wages, negligence, and a number of other factors. The cost to defend yourself in court alone would take a massive chunk out of your liability insurance limit and, depending on the judgement, you could find yourself suddenly at your policy’s limit. Could your business afford to take the financial hit and overcome the reputational damage?
The benefits and peace of mind that umbrella insurance can offer you as an individual and as a business owner far outweigh the policy cost. Just as mother nature is getting more unpredictable so is society. You never truly know what the weather holds, so it’s best to be prepared. Why risk it if you don’t have to?