Why Do I Need Excess Liability Insurance?
- Excess liability insurance is third-party insurance coverage that goes into effect when you have exhausted the limits of a base liability policy. For instance, if you have an automobile insurance policy, your insurer may limit the amount of liability coverage you can purchase to an amount such of $300,000 or $500,000. If a lawsuit judgment goes against you and requires you to pay a larger amount to an injured party, your excess liability coverage goes into effect.
- You may not need excess liability coverage if you own relatively few assets, as you won't have as much to lose in a lawsuit. However, if you own a large number of assets like homes, cars, a business, valuable jewelry or collectible items, you could lose it all if a judgment goes against you. The more assets you own, the larger lawsuit target you are likely to be, especially if you are in the public eye.
- A way to determine if you need excess liability coverage is to calculate your net worth by subtracting your total liabilities from the value of your assets. For example, if your assets total $5 million and your liabilities equal $1 million, your net worth is $4 million. If your underlying auto and homeowners liability limits are capped at $300,000, you would need an additional $3.7 million of excess liability coverage to completely protect your assets.
- The most common form of excess liability coverage is the umbrella policy. A personal umbrella policy typically provides excess coverage for your homeowners and auto policies. A commercial umbrella offers additional coverage for a general liability policy for a business. Umbrella policies are usually sold in $1 million increments. While umbrellas can provide large coverage amounts, their premiums are relatively inexpensive due to the fact that they are not needed until other available liability coverage has been used first.
