Wealth Exposed: Insurance Planning for High Net Worth Individuals and Their Advisors

CHAPTER 6

How Big Is Your Umbrella?

Since I am on the topic of high-end cars for high net worth people, it’s as good a time as any to revisit the critical importance of personal umbrella liability coverage. The costs associated with fixing or replacing even the most exotic car pale in comparison to the amount of money wealthy people will shell out to pay liability claims. It’s no coincidence that jury awards and settlements grow in proportion to a person’s net worth. Such is the mindset of our society today: What’s yours is mine if you’re dumb enough to leave yourself open for me to take it. While that may seem like a harsh commentary on society, it’s a game that plays itself out thousands of times each year, and the stakes run into the tens of billions of dollars.

Consider this actual case: Timothy and Clara have a net worth of $10 million. In addition to a broad coverage auto insurance policy for their Mercedes CL600, they also have a $1 million personal umbrella liability policy. Coming out of a turn on a rainy night their car swerved into an oncoming car, seriously injuring a family of five. A jury finds the couple at fault and awards each of the family members $500,000 for lifelong pain and suffering, as well as economic damages. In addition to legal fees and the cost of replacing the family’s totaled vehicle, the total cost is more than $3 million.

Fortunately, the father was only injured. Had he died, the jury may have determined that his $100,000 income, now lost to the ...