Protect Your Wealth With the Right Liability Insurance

For affluent individuals and families, the possibility of liability claims can threaten their hard-earned wealth. While 92% of households express concern about potential lawsuits, only 28% carry enough liability insurance.1 This means many individuals face a significant coverage gap that could lead to significant losses. 

It's essential to explore strategies to strengthen your liability coverage and ensure your assets remain secure.

The Hidden Perils of Homeownership

Owning a home provides many benefits and can be an important part of your generational wealth plan. But it also comes with a specific set of risks that can lead to considerable financial and legal repercussions.

The stakes are even higher for those with high value assets in their homes, since the required coverage for them often exceeds the limits of standard home insurance policies.

Here are four liability risks you may face.

Personal Injury Claims

Homeowners can face lawsuits if guests, workers, or even delivery personnel are injured on their property. While most people think about slip-and-fall accidents, issues like dog bites or accidents caused by property maintenance can lead to expensive legal battles, too. High-value homes with more complex layouts or unique features can present additional risks.

Natural Disasters

While most homeowners' policies cover damages caused by fire or storm, more complex events such as floods, earthquakes, or wildfires may not be included. If you own property in high-risk areas, natural disasters can lead to substantial property damage—and potential liability to others affected by the disaster.

Identity Theft and Fraud

With more increasingly conducting their personal and financial business online, identity theft targeting homeowners' personal information is becoming an emerging threat. Fraudulent activities could lead to both financial and legal exposure.

Theft and Financial Exploitation

Luxury homes, second homes, expensive collectibles, or rare assets make homeowners, especially older adults, more appealing targets for criminals. This can be from people breaking into your home, but also ...

Financial exploitation and unauthorized transactions can expose you or others you care for to significant financial and legal risks.

Mitigating the Risks of Homeownership

The liability risks outlined above make it essential that your property insurance adequately protects you. Work with a home insurance agent that specializes in your home type — and the type of liability issues specific to where you live or own a second home.

They can let you know what type of coverage — and how much — you should have given the specifics of your situation. So that the agent can best help you, let them know the specifics of your situation. A specialized home insurance agent who knows your area well can also advise you on the need for special endorsements, like for flood, wildfire, or earthquakes.

Navigating the Risks of Car Ownership

Owning a motor vehicle is part of daily life, but driving can expose you to serious liability that extends beyond standard auto insurance. It’s essential to mitigate those risks with proper insurance coverage. Otherwise, car accidents can lead to significant financial responsibility for both injury and property damage.

Here are three specific liability risks to consider.

Owning a high-value or classic vehicle

While any car accident can open you up to significant financial responsibility, this problem can be heightened if you drive a high-value vehicle or a classic car. In these case, the higher perceived value of your assets may expose you to larger lawsuits from attorneys or plaintiffs, increasing the potential for larger settlements.

Lending your vehicle to family, friends, or guests

Lending your vehicle, especially one that’s a luxury or classic model, further increases your legal exposure. If another person causes an accident while driving your car, you could still be held financially responsible. To avoid unexpected coverage gaps, it's essential to understand your insurer’s policies regarding additional drivers, whether they are family, friends, or guests.

Renting your vehicle out through peer-to-peer platforms

Finally, renting out your vehicle through peer-to-peer platforms like Turo or Getaround can increase your liability risk even more than lending it, especially if an accident occurs during a rental. Most personal auto insurance policies do not cover vehicles used commercially, including as rentals, leaving you without coverage for damages or liability claims. To protect yourself, it’s crucial to inform your insurer about the rental activity to avoid the risk of policy cancellation and ask about and get commercial coverage for this purpose.

Mitigating the Risks of Car Ownership

To mitigate the above risks, ask your auto insurance agent to review your coverage to make sure you're sufficiently protected for the types of liability risks you face. Consider supplementing your coverage with an umbrella policy to extend your liability protection.

The Power of a Personal Umbrella Policy

While homeowners and auto insurance provide baseline protection, a personal umbrella policy offers an additional layer of coverage to safeguard your high-value assets. Unfortunately, some people believe this insurance coverage is only necessary for those with more substantial wealth than they have — or that it is prohibitively expensive. Both are myths, because anyone, regardless of their net worth, can face liability litigation.

A personal umbrella policy is crucial for extending your liability coverage beyond the limits of your primary policies and providing you with greater financial peace of mind. It’s important to know how these policies extend coverage and what important features they may offer you. 

Here are the three most important ones.

Broader Coverage

Umbrella policies can not only cover personal injury claims but can also protect against more specific risks, including defamation, slander, or even lawsuits arising from business activities. Umbrella policies typically include legal defense costs, which can accumulate rapidly in the event of a lawsuit. This offers you more comprehensive protection.

Protection from International Risks

Many standard policies may not cover incidents that occur outside the U.S. Your umbrella policy can address some global risks when you're traveling abroad. It should fill the gap in your domestic insurance, providing international coverage, including protection against potential lawsuits or claims stemming from activities or incidents abroad.

Customization and Flexibility of Coverage

You may have a complex financial portfolio or other needs, meaning a "one-size-fits-all" policy might not be enough. Umbrella policies can be customized for unique assets — such as rare collectibles, second homes, or specific business ventures. You may also adjust the policy limits based on asset values or adding specific endorsements for high-risk activities.

Consider liability issues related to how you use the properties you own. For example, may you rent out property either on a full-time basis — or part-time as a vacation rental or Airbnb. Or maybe you run a business that brings clients to you. These and other potential uses may require coverage beyond what your homeowner's insurance offers.

Getting the right umbrella coverage depends on your net worth, lifestyle, business activities, and specific risks particular to you. Work with your insurance provider and financial advisor to determine the amount of umbrella insurance you need to complement your existing policies, ensuring it aligns with your financial objectives.

Proactively Protecting Your Wealth

Regularly review your policies to ensure they are up-to-date and reflect your current assets and liabilities. Your wealth and lifestyle can change quickly, especially after significant life events, such as purchasing a new property, starting a business, or experiencing a change in family composition or dynamics. To protect your wealth, you'll need to ensure that your insurance coverage changes to reflect your new financial reality.

You don't have to do this alone. Work with insurance experts, financial advisors, and legal professionals to assess your unique risk profile. They can help you determine gaps in coverage and offer advice based on your specific circumstances.