It is no secret that ultra-high net worth (UHNW) families have a heightened exposure to lawsuits seeking judgments for real or imagined damages.
But, because most personal liability policies are designed for the average household, they do not adequately protect individuals and families of greater affluence from liability suits.
This means that to properly protect your assets, you most likely need a higher limit of liability to provide coverage on a worldwide basis over and above the basic limits provided under your primary home, auto, recreationalvehicle and watercraft policies. This comprehensive coverage can be purchased in the form of an excess, or umbrella, liability policy. However, obtaining higher coverage limits on the open individual-umbrella market can prove prohibitively expensive. Fortunately, group umbrella policies are available to affluent families and companies with high-income executive teams. These group policies offer higher limits and broader categories of liability protection. The coverage can also be customized to each client’s unique needs.
HOW IT WORKS
A group umbrella liability policy works in conjunction with, and supplements, your primary personal liability coverage provided under your existing insurance policies, such as homeowners and auto.
HOW IT IS OFFERED
Group umbrella coverage is sold in million-dollar increments up to $5 million, and thereafter in $5 million increments. In today’s environment, where multi-million-dollar lawsuits are becoming more commonplace, we routinelysee the purchase of umbrella coverage in excess of $5 million or even $10 million.
HOW IT SAVES YOU MONEY
This type of personal property-casualty coverage has the lowest ratio of premium-to-maximum claim payout of nearly all personal insurance lines. This price/value benefit is available because each participant’s level of riskis not individually underwritten. Simply put, the risk is spread throughout the group, making the rates more reasonable.
For example, if you buy an individual umbrella policy, the first $10 million of coverage purchased could be around $180 per $1 million of coverage. But, if you purchase limits above $10 million, the rate often jumps to approximately $500 per $1 million of coverage. In contrast, with a group umbrella policy, limits above $10 million are still available at the $180 per $1 million cost. This means that a $50 million policy, individually underwritten, would cost $21,800 a year. However, with group umbrella coverage, the cost is $9,000 per year, or less than half.
FORMING A GROUP
To qualify for group umbrella rates, carriers typically require a minimum of 10 to 12 participants with some type of relationship to one other, such as a family or employer. However, this minimum is negotiable depending on the relationship and amount of coverage being purchased.
DETERMINING YOUR COVERAGE LIMIT
What is an appropriate coverage limit for UHNW families? That is a judgment call which will vary from situation to situation. A quiet lifestyle has less exposure than a lifestyle that includes a trans-Atlantic yacht, hot air ballooning or teenage drivers in the household. Therefore, choosing the right limit for you depends a great deal on where you are in your life and how you live it.
PROTECTING YOUR FUTURE
Without umbrella coverage you are putting your assets as well as future income at risk. Therefore, a judgment exceeding your coverage could result in a loss of your retirement and any planned legacy. Umbrella coverage is anessential component of your insurance program and it’s important to choose a coverage limit that adequately protects you. With the benefit of group rates, the coverage you need becomes even more economical.
Insurance services provided through NFP Property & Casualty Services, Inc., doing business in California as NFP Property & Casualty Insurance Services, Inc., License # 0F15715. Insurance costs described herein are for illustrative purposes only. Your actual cost may vary depending upon the terms and conditions of insurance desired and your situation.
This article was originally published in the February/March 2016 issue of Worth.