Personal excess insurance is not your grandfather's basic “umbrella” insurance, although there are many similarities. Both provide an additional level of liability coverage beyond the underlying automobile and homeowners' policies. The insurance applies if a policyholder sustains an injury in the home or on the property, or is involved in a car, boat or other vehicle accident. If the legal judgments in these situations exceed the coverage limits of the underlying auto and home policies, the personal excess insurance activates to absorb the remaining financial costs up to the financial limits of protection.

Why do people need this additional layer of insurance? For one thing, the more financial assets one has, the greater his or her vulnerability to a lawsuit. In the past, individual wealth was a private matter. These days, plaintiff attorneys can easily access numerous online resources to quickly identify the breadth of someone's net wealth. This makes your clients “targets,” says Mickie Comiskey, chief operating officer at Focus Insurance and Financial Services, a Houston-based agency serving a predominantly high-net-worth clientele.

“They think their wealth is invisible to others,” she said. “The sad truth is otherwise.”

Litigation Liability

Comiskey considers personal excess insurance a vital adjunct to a sound ­family risk management plan. “We're frankly surprised at how many people don't have personal excess or fail to have enough, given how common personal injury lawsuits are and the substantial judgments they typically result in,” she said. “We live in a litigious world, for better or for worse.”

One cannot fault plaintiff attorneys for going for the jugular—it's their jobs to obtain the best settlements for their clients. This puts the onus on agents and brokers to ensure that clients have transferred their personal liabilities through insurance. Yet even financially sophisticated high-net-worth executives sometimes fail to purchase adequate limits of personal excess coverage. In some cases, they have not increased the limits of protection as their net wealth ballooned.

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“I've worked with families that have multiple homes, and 99 percent of the time the value on just the homes exceeds the limits on the primary policy, without considering the land, several high-end luxury vehicles, fine art, expensive furnishings, and so on,” Comiskey said. “The total can easily exceed $25 million, and they've got primary insurance for just the houses, and personal excess insurance of $5 million. They're vastly underinsured, and they are astonished when I tell them that.”

Horrific car crashes aren't the only way to melt a fortune. A large exposure for many families arises from their children's unsupervised and potentially illegal activities. Many teenagers routinely text, blog and email comments about teachers and schoolmates that may be considered slanderous, libelous or defamatory. They may host out-of-control parties unsupervised by parents or other adults, or take the wheel of a car packed with friends under the influence of alcohol or drugs.

“People think bad stuff only happens to others,” Comiskey said. “Unfortunately, this attitude informs their feelings about insurance.”

Many other agents and brokers would agree. Eric Levy, president of American Benefits Consulting, a New York-based benefits consultancy and brokerage, said the firm always recommends excess liability programs to its corporate clients. “We have seen cases where car accidents led to horrible injuries,” Levy said. “No company wants to see one of their employees go through a difficult lawsuit without proper legal representation and adequate insurance protection.”

Levy recalled a serious accident involving one of the firm's clients. The son of an executive was injured in an accident caused by another driver, and the at-fault operator had purchased only the minimum liability limits required by law. Fortunately, the executive had taken advantage of the program offered by his company and purchased an excess liability insurance policy with uninsured/underinsured motorist protection. This supplemental coverage picked up the extensive medical, rehabilitation and extended care needs. “If it weren't for this coverage, he would have had enormous out-of-pocket expenses to properly care for his son,” Levy said.

Although some individuals can afford this cost of care, the same situation would be financially crippling for most families. “Even just $20,000 in out-of-pocket costs for someone making $80,000 a year is a lot of money,” Levy explains.

Comiskey agreed: “In today's world, a $5 million personal excess limit is not enough for most senior executives, yet many people still seem to think this is somehow the right figure. When I tell them they can get millions of dollars in additional coverage for very little money—limits commensurate with the risks they face—needless to say, they're surprised.”

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Indeed, even if a policyholder wins a case, there are still legal bills to pay. All the more reason to purchase personal excess insurance from a carrier specializing in the high-net-worth market, with access to top legal talent focused on personal liability litigation. As Levy put it, “Clients need expert legal representation and the muscle of a top insurer behind them.”

American Benefits Consulting is such an ardent advocate of personal excess liability insurance that they stress to their clients that employers should routinely offer the coverage as a benefit to executives on a group basis, along the lines of health and disability insurance benefits and stock options. “We've been very successful carving out personal excess group policies for top earners in a business, with limits as high as $25 million and riders extending this to $50 million,” Levy said.

“We explain that you might win a case, but still end up with a year's worth of legal bills to pay,” he added. “Some people don't even need a good reason to sue—just because you have money, you're a target. I tell that all the time to my clients—it opens eyes.”

Obviously, agents and brokers regularly don the hat of risk advisor. “I take the personal risks of our clientele very much to heart,” Comiskey said. “They've worked so hard for their financial success; it just upsets me that it can all be so easily taken away. They're confident people who tend to think 'That would never happen to me.' I tell them they have to be prepared for worst-case scenarios—for catastrophes.”

She added, “If I could buy (personal excess) insurance for them myself I would—it's that inexpensive.”

That's the great thing about personal excess coverage—there's no “excess” in the price, only in the value it provides.