Providing valuable advice andfinancial protection are the fundamental responsibilities of aninsurance advisor, yet many people overlook a significant risk totheir well-being.

Many underestimate the threats to their personal net wealth,confident that their automobile and homeowners insurance policieswill buffer the financial strain. As a result, they often fail tobuy personal excess liability insurance, or they purchaseinadequate limits that do not address all risks. Then theunthinkable happens—a child is injured in a devastating caraccident involving an uninsured or underinsured motorist.

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Massive medical bills rapidly pile up, as do additional expensesfor the child's physical rehabilitation and extended care. Healthinsurance and the primary uninsured motorist coverage pick up aportion of this financial burden, but those limits are quicklyexhausted. The regrettable reality is that for many families, theemotional and financial burden has just started.

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

Why do people need this additional layer of insurance? For onething, the more financial assets one has, the greater his or hervulnerability to a lawsuit. In the past, individual wealth was aprivate matter. These days, plaintiff attorneys can easily accessnumerous online resources to quickly identify the breadth ofsomeone's net wealth. This makes your clients “targets,” saysMickie Comiskey, chief operating officer at Focus Insurance andFinancial Services, a Houston-based agency serving a predominantlyhigh-net-worth clientele.

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

Litigation Liability

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

One cannot fault plaintiff attorneys for going for thejugular—it's their jobs to obtain the best settlements for theirclients. This puts the onus on agents and brokers to ensure thatclients have transferred their personal liabilities throughinsurance. Yet even financially sophisticated high-net-worthexecutives sometimes fail to purchase adequate limits of personalexcess coverage. In some cases, they have not increased the limitsof protection as their net wealth ballooned.

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

Horrific car crashes aren't the only way to melt a fortune. Alarge exposure for many families arises from their children'sunsupervised and potentially illegal activities. Many teenagersroutinely text, blog and email comments about teachers andschoolmates that may be considered slanderous, libelous ordefamatory. They may host out-of-control parties unsupervised byparents or other adults, or take the wheel of a car packed withfriends under the influence of alcohol or drugs.

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

Many other agents and brokers would agree. Eric Levy, presidentof American Benefits Consulting, a New York-based benefitsconsultancy and brokerage, said the firm always recommends excessliability programs to its corporate clients. “We have seen caseswhere car accidents led to horrible injuries,” Levy said. “Nocompany wants to see one of their employees go through a difficultlawsuit without proper legal representation and adequate insuranceprotection.”

Levy recalled a serious accident involving one of the firm'sclients. The son of an executive was injured in an accident causedby another driver, and the at-fault operator had purchased only theminimum liability limits required by law. Fortunately, theexecutive had taken advantage of the program offered by his companyand purchased an excess liability insurance policy withuninsured/underinsured motorist protection. This supplementalcoverage picked up the extensive medical, rehabilitation andextended care needs. “If it weren't for this coverage, he wouldhave had enormous out-of-pocket expenses to properly care for hisson,” Levy said.

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

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

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

American Benefits Consulting is such an ardent advocate ofpersonal excess liability insurance that they stress to theirclients that employers should routinely offer the coverage as abenefit to executives on a group basis, along the lines of healthand disability insurance benefits and stock options. “We've beenvery successful carving out personal excess group policies for topearners in a business, with limits as high as $25 million andriders extending this to $50 million,” Levy said.

“We explain that you might win a case, but still end up with ayear's worth of legal bills to pay,” he added. “Some people don'teven need a good reason to sue—just because you have money, you'rea target. I tell that all the time to my clients—it openseyes.”

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

She added, “If I could buy (personal excess) insurance for themmyself 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.