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ON THE MONEY: Personal umbrella liability policy is a must

June 24, 2018 GMT

Let’s assume that you are in a serious automobile accident and you are found to be at fault. The driver of the other vehicle that you ran into was badly injured in the accident and elects to sue you in court. The jury rules against you and awards a judgment of $900,000 to the plaintiff. In the case of my automobile coverage amount, my insurer would pay $299,000 if my deductible were $1,000, but I would be left holding the bag to the tune of an additional $600,000. In today’s litigious society, these numbers are, unfortunately, probably low, particularly due the fact that attorneys now routinely advertise on TV, stating that they can obtain huge judgments against the “evil” insurance companies who are out to bilk injured parties out of their just reparations.

Consider these other potential liability situations that arise every day across the country:

• Your next door neighbor slips and falls on your property, and you are sued under your homeowner’s policy; or,

• A large tree in your yard is hit by lightning, falls and severely damages your neighbor’s house, and the damages total $150,000. It simply won’t do for you to say that you thought that this was covered by your homeowner’s coverage, because it probably would not be.

An umbrella liability policy is aptly named, since its sits atop your auto and homeowner’s policies to provide extra protection over and above the liability amount provided the in the “base” policy. So, if you have a $1 million dollar umbrella liability policy, and a base homeowner’s policy, in the auto accident example above, the auto policy would pay $299,000, assuming a $1,000 deductible and the umbrella policy would pay $600,000.

Umbrella liability coverage may be purchased in amounts upwards of $1, $2 or even $5 million of coverage, on top of the amounts provided by your base policy. Premiums per million usually run about $200 (so long as you have reasonably good risk factors, such as zero speeding tickets in the past few years and your credit is good), and, depending on the insurer, you are usually able to determine the amount of coverage that you want.

Typical umbrella policies require you to have underlying homeowner’s and auto liability coverage equal to the amount of the umbrella policy’s deductible. Also, it is usually a good idea to get all of your policies from the same insurer, since you will usually get a premium discount and you will not have to fight with multiple companies is something should occur.

It is scary to contemplate all of the liability risks that we take every day, and the occurrence of any one can instantly destroy the best financial planning strategy. Not too many of us can self-insure such risks, so the use of commercial insurance is, in my view, the best answer, since insurance should be purchased in every situation in which the frequency of loss is low, but the severity of the potential loss is high.

I strongly encourage you to speak with your auto and homeowner insurance agent this week to check out the availability and premium for a minimum of $1 million of umbrella liability coverage for you.

Morningstar recently published its list of wide-moat stocks that have exemplary stewardship ratings. This stewardship rating takes into consideration the quality of the company’s managerial oversight of investor capital. “Wide-moat” can be thought of as the cost of a competitor duplicating the company’s infrastructure, brand name or other operating efficiencies. Wider is better.

Two of the listed stocks also received Morningstar’s highest ratings of five stars, which means that Morningstar views the current stock price as being undervalued. Each of these two stocks also had a low uncertainty rating. The two stocks were Anheuser-Busch and Dominion Energy.