How Much is Enough Liability Protection?

How much is enough liability protectionA lot of prospects and clients ask me: “How much is enough liability protection?”

It’s not easy to answer, but we often recommend that in addition to primary general liability and auto liability limits of $1,000,000 or $2,000,000 that they should also consider at least a $1,000,000 umbrella policy.

I say at LEAST one million but would actually prefer clients to have $5,000,000 or more of liability protection.

The recommendation of high limits of protection is frequently followed by the question: “How much is enough?”  That’s a tough question to answer, and budget certainly has a lot to do with it, but in reality today having a million dollars of protection for general or auto liability doesn’t go very far, in fact two million doesn’t go very far in a bad loss.

So, what’s a “bad” loss?

A bad loss isn’t necessarily catastrophic, and it’s going to be different for every type of client depending on what you do.  The most common type of claim that can easily and frequently does trigger multi-million dollar lawsuits are auto accidents.  When you or your employees may cause a loss where others are seriously injured and your company is even partially at fault, you could be facing significant claims. We recently reviewed a loss where the driver of a company car swerved to miss a taxi in a busy New York City intersection accidentally hitting and seriously injuring four pedestrians.  It happened in a blink of an eye, and clearly was an uncontrollable accident.  The injuries of the pedestrians ranged from very serious long term injuries requiring lengthy hospital stays; to broken bones and released from the hospital the same day. The insured has $1,000,000 of auto liability insurance which the adjuster has posted as the total reserve for the loss, but indicates that the multiple claims will easily exceed that limit.  Unfortunately the insured had refused to purchase an umbrella policy in our last coverage review, citing the cost and wanting to keep his insurance budget the same as last year.  The cost of the extra million dollars of protection was $1,500 last time we proposed the coverage; I wish I could have forced them to purchase it! There are probably hundreds of examples we could dig up on auto and general liability losses where businesses didn’t have sufficient insurance protection to fully cover the claims and either had to fund the losses out of pocket, or they went bankrupt.

Wondering if your liability limits are adequate after a loss has occurred isn’t the right time to really consider this.  Obviously you need to have sufficient protection well before an accident or serious loss occurs.  As I stated earlier, most businesses carry $1,000,000 limits for general liability and auto liability protection – THIS IS NOT ENOUGH in today’s litigious environment!  It may have been sufficient 20 years ago, but it’s unrealistically low today.  At a minimum you should have a $1,000,000 umbrella policy on top of those million dollar primary limits, but we recommend looking at higher limits of  umbrella liability protection levels of $3 to $5 million.  Excess limits are relatively inexpensive so make sure your limits are adequate!

Have more questions?  Feel like maybe you’ve outgrown your existing brokerage relationship?  Give us a call or drop me an email – let’s start a conversation.

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