In today’s increasingly litigious environment, high-net-worth (HNW), successful individuals and families face rising liability risks that go well beyond what primary policies are designed to address, such as homeowners and auto insurance. The emergence of nuclear verdicts, which are defined as jury awards that exceed $10 million, makes personal umbrella insurance an essential risk management tool for successful families.
The Social Inflation Effect
Social inflation refers to the rising costs of insurance claims and payouts, which are increasing faster than general economic inflation. This is due to evolving societal attitudes toward litigation and compensation, an aggressive plaintiff bar and higher litigation costs. Third-party litigation funding by private equity firms and hedge funds and tort reform rollbacks have also contributed to social inflation. These combined factors fuel larger settlements and jury awards.
According to research firm Marathon Strategies, the number of jury verdicts exceeding $10 million rose by more than 52% in 2024 over the previous year. The median nuclear verdict rose to $51 million from $44 million in 2023.
When jurors see someone with deep pockets, they’re more inclined to award significant damages. This reality is magnified for successful individuals, whose wealth makes them visible targets. Additionally, assets and lifestyle choices common among successful individuals and families can significantly increase exposure to risk and liability. These include high-performance vehicles, luxury homes, swimming pools, vacation properties and yachts.
While few anticipate ever being sued, a guest injury on your property or a boating mishap can escalate into a lawsuit with staggering financial consequences.
A Surprising Coverage Gap
Despite growing liability risks, many successful individuals still have coverage gaps. According to Chubb’s 2024 Wealth Report, while 92% of wealthy respondents are concerned about large liability verdicts, only 28% carry personal umbrella insurance. They may be unaware there is a policy that extends the liability limits of their standard policies to address high verdicts, or they believe having high liability limits will make them a target of a lawsuit. The reality is that a personal umbrella protects successful individuals and families from having to pay out of pocket in the event of a devastating lawsuit.
How a Personal Umbrella Policy Works
Personal umbrella insurance offers an additional layer of liability protection for bodily injury, property damage and personal injury. The coverage extends beyond your primary policies such as homeowners, auto and yacht insurance. If a covered claim surpasses the limits of your primary policy, the umbrella insurance steps in to cover the remaining costs, up to the limits of the policy. It acts as a supplement to your primary policy, ensuring you don’t have to bear the financial burden out of pocket.
For example, if you have an auto policy with a $500,000 liability limit and are sued for $3 million after a serious accident, with a $5 million umbrella policy, you would be insured for the remaining $2.5 million.
Umbrella policies can be purchased in increments starting at $1 million, with coverage limits reaching up to $100 million. Insurers generally require that they insure your entire portfolio before offering the higher limits. This approach helps prevent any gaps in coverage.
However, there is flexibility. For instance, if you own a property in a high-risk area, like Florida or California, and the insurer does not offer primary homeowners coverage, exceptions can be made to include coverage on the umbrella policy if the primary policy remains insured by another company.
How Much Umbrella Coverage Do You Need?
Determining the right umbrella limit starts with your net worth but should also factor in your overall risk profile. Ask yourself:
- Risk tolerance: How much could you pay out of pocket if faced with a major lawsuit?
- Visible assets: Do you own luxury homes, high-end cars or other valuables that could attract legal attention?
- Financial holdings: What’s the total value of your earned income, investments, Trusts or LLCs?
- Lifestyle risks: Do you serve on boards, employ household staff or have young drivers? Do you host large gatherings or maintain a high public profile?
A full assessment of both your current assets and potential exposures ensures you select limits that protect your wealth.
The Cost of a Personal Umbrella Policy
One of the most overlooked aspects of umbrella insurance is its relative affordability. While premiums vary by exposure and primary rating location, the incremental cost to increase limits is often modest. When you consider your lifestyle, assets and future earning potential, the cost of an umbrella policy is minimal compared to the possible financial exposure.
Nuclear verdicts are no longer confined to corporate America. Successful individuals and families are increasingly in the crosshairs of aggressive litigation, and the size of awards shows no sign of shrinking. The financial fallout can be devastating, whether it’s an auto accident, a guest injury at your home or a liability tied to your boat. Personal umbrella insurance offers peace of mind to protect what you have worked so hard to build.
Contact HWP Insurance to discuss your personal umbrella needs.
About HWP Insurance
HWP Insurance is a leading insurance agency that offers customized solutions for successful individuals and families. With a strong presence in Washington, D.C., Annapolis and Southern Maryland, we offer guidance to protect what matters most. Learn more at hwphillips.com.
Enjoying this article?
