How insurance can help cover your losses should you be found liable Featured

7:02pm EDT January 31, 2012
How insurance can help cover your losses should you be found liable

As a business leader, you go to great extents to protect your business. But what are you doing to protect your personal assets?

Too many times, business owners can cite chapter and verse of their business insurance coverage but are at a loss when it comes to their personal liability, says Christine Kleintop, personal lines producer at SeibertKeck.

“Everything that you own, your assets, your future earnings, everything that you want to protect, could be at risk if you are sued,” says Kleintop. “Everyone wants to protect their belongings, but liability is the bigger exposure.”

Smart Business spoke with Kleintop about how high-net-worth individuals can use insurance to protect their personal assets should they be sued.

Where should you start with coverage?

Start at the most basic level, which is auto, home and any specialty item policies, such as a boat owner’s policy or motorcycle policy. Look at the basic limit of liability. And never go with the state minimum, regardless of what your assets are — purchase no less than $300,000 to $500,000 of coverage as a starting point.

What is the next step?

Move on to umbrella coverage. This coverage, which everyone should have, covers for losses above the limits of the underlying policies. If you can get sued, you should have an umbrella. It picks up where the other policies leave off.

It gives you a higher dollar amount, but can also be broader than the underlying policies. For example, you could be sued for slander. Your homeowner’s policy may not cover that, but the umbrella may pick it up.

How much coverage do you need?

There is no right amount of coverage. For someone who doesn’t experience an adverse event, $1 million in coverage may be enough. But someone who is texting and hits a school bus may not have purchased enough coverage.

A good starting point is to look at your assets, your exposure and your future earnings, and consider how much risk you are comfortable with and how much risk you want to transfer. Are you very aggressive and willing to take on more risk, or are you more conservative and want to go with a safer bet by purchasing higher limits?

View the decision through the lens of how a lawsuit could affect not only you but your family. Some people may be risk-takers, but they don’t want to risk something that can affect their whole family.

Also, look for red flags that could put a target on you for a possible lawsuit. For example, if you own a pool or a dog, if you have teenagers on social websites or teenage drivers. Also at higher risk are highly visible people like coaches, business owners or politicians.

High-net-worth individuals have more to lose, but everybody has exposure, and anyone can be sued. So no matter the size of your exposure, it should be analyzed with your insurance broker.

How can having coverage with multiple agents negatively impact umbrella coverage?

We talk to business leaders all the time about their business insurance, but when you ask about their personal insurance, they are often unclear. Their spouse often takes care of that, and they are so busy protecting their business that they often can’t tell you where their personal insurance is, or what liability limits they carry.

For example, if someone has a home in Florida, that is a very tough market in which to get liability insurance, and if you can get it, the limits are sometimes very low. Now that person has different limits in two states through two agents, and if he or she has umbrella coverage, it doesn’t extend over all of those assets because the primary agent doesn’t even realize there is a policy with other agents.

The same holds true if someone buys a boat and gets coverage through the dealer but doesn’t tell the primary agent. It’s important to talk to your agent about all of your coverage to ensure that there aren’t any holes.

How often should you review your coverage?

It’s always good to regularly have that conversation and look at your policies because it might alert your agent to a gap in coverage. I always tell clients, ‘If you’re going to do anything different, call me. Don’t do anything until you call me.’ A good example is that what an insured calls a hobby may be a business by insurance definition.

That said, a lot of people are price shopping these days. That can lower your costs, but that’s not necessarily a good thing. Sometimes it’s better to pay a little more if you are with the right company with the right coverage. If you have great claims service, it may not be not worth moving to save $100.

What other areas of liability should people be aware of?

Another area is loss assessment. For example, if you are a member of a homeowner’s association and a claim occurs in a common area, each owner could be assessed for a portion of that loss. Depending on how many people there are and the size of the loss, your cost could be sizable.

In addition, if you employ an individual who is not employed through an agency, there is a good chance that you may be responsible for purchasing workers’ compensation coverage. In Ohio, if you pay someone more than $160 per quarter, say, to clean your house or mow your lawn, then you are responsible for contacting the workers’ compensation bureau and taking out workers’ compensation insurance on that person.

Although your insurance agent can’t sell you this insurance directly, consulting with that person can help you determine if this is a coverage you need to purchase.

Christine Kleintop is a personal lines producer at SeibertKeck. Reach her at ckleintop@seibertkeck.com.