Umbrellas Protect From More Than Just Rain
The purpose of a will is to direct property to specific beneficiaries. If a judgment is rendered against you that exceeds you liability insurance, you will not be able to direct those assets to any beneficiaries under your last will and testament.
When we meet with a client to prepare a will, we have the client fill out a confidential information form that enables us to understand the scope of the client’s assets and wealth.
At the same time, we ask the client how much liability insurance he/she has and often we find that the client is inadequately insured. Most of my clients live in Howard County, Maryland, one of the wealthiest counties in the nation. However, if a client is sued because he or she is underinsured, the assets are vulnerable to a judgment.
Here is an example of an individual whom I have worked with over the years who was inadequately insured. My client was a single individual who owned net assets of 1.5 Million Dollars. This client was in an automobile accident in which he failed to yield the right-of-way and which resulted in a total loss of a white van owned by one of the large employers in this county. Additionally, there was moderate injury to the driver of the van. We learned that the client had automobile liability insurance of $100,000/$300,000. This means that since there was one person in the van, the maximum payout for Personal Injury would be $100,000. For the property damage, there was insurance of $100,000. In the van there was a part for a telescope for outer space worth $2 Million Dollars and the replacement value of the van was $20,000. Unfortunately then, there was a shortfall in coverage of $620,000. The total insurance available under my client’s automobile policy for Personal Injury was $100,000 but this accident involved only moderate Personal Injury. The major problem was the damage to both the telescope part and the van for which the policy limits for property damage was also $100,000. The $100,000 in property damage coverage combined with personal assets of 1.5 Million Dollars was insufficient to pay the judgment of $2,220,000. It should be noted that if the 1.5 Million Dollars in assets included IRAs and other deferred compensation, those assets may not be subject to a judgment.
A reasonable way to deal with my client’s exposure is to obtain an umbrella insurance policy. For an annual premium of $100, an individual may obtain an umbrella policy with $1 Million in coverage. Each additional Million has an annual premium of less than $100. I recommend that individuals have a minimum of $1 Million in umbrella coverage and often in greater amounts based upon the individual’s total net assets. When you contact your insurance broker, ask what is the cost of the annual premium of an umbrella insurance policy. If, as in this example, you currently have $100,000/ $300,000 and property damage of $100,000 in your policy, it will be necessary to increase the liability coverage for both Personal Injury and property damage. Most clients are concerned as to how much it will cost to pick up an umbrella policy as they are hesitant to increase the cost of their auto liability insurance. One way of reducing the cost is by increasing your deductible. I recommend to people with good driving records to increase their deductible to $1000.
An umbrella policy would also be a safety net for you in the event someone injures themselves on your property (your residence) and the injuries are substantial. In this instance, the umbrella policy would extend your coverage beyond the limits of your homeowner’s policy.
Years ago, insurance companies and/or attorneys insuring or representing the injured party would accept policy limits. Today, they will do an asset check on the party at fault and seek to obtain the individual’s personal assets once a judgment has been obtained. If that effort is successful, there may be no assets to leave to beneficiaries in a will.
Again, the simple solution to protecting your assets is to obtain large amounts of coverage through an umbrella insurance policy.
So, if you want your assets to be directed to your intended beneficiaries, utilize good judgment in making sure that your assets are protected against the claims of others. An umbrella policy does not protect you from all liability but it certainly may have a practical and beneficial benefit in protecting your assets if you are negligent or found negligent by a jury.
Fred Antenberg, a Estates Planning attorney with over thirty years of experience, is located in Howard County Maryland, and represents individuals in adjoining counties.
Fred Antenberg prepares wills and other related documents and has experience in administering estates.
CONTACT Fred today at 410 730 4404.