Shelter Your Retirement Lifestyle

Between 1950 and 2007, U.S. tort costs grew more than 800% on a per capita basis, rising to about $835 per every man, woman, and child.¹

Take dog bites, for example, the cause of one-third of all homeowners insurance liability claims. Between 2003 and 2008, the average cost from a dog-bite claim increased more than 27%. The number of such claims rose more than 8% in 2008 alone.²

When it comes to liability risk, dog bites are just the beginning. If you own a swimming pool, have teenagers (especially teens who drive) living at home, entertain frequently, and/or employ workers in your home, you might be at a higher risk of being the target of a personal liability lawsuit, which could consume assets you intended to live on in retirement.

Of course, qualified retirement plan assets enjoy some protection from creditors, but just because no one can seize your retirement plan doesn’t mean you are off the hook if you are found to be liable for a large judgment. Fortunately, you may be able to add an extra layer of insurance protection to your current risk-management strategy without paying significantly higher premiums.

Sky-High Limit

An umbrella liability insurance policy takes effect in the event that the limits of your primary insurance policies are exhausted. To qualify, buyers must generally purchase the maximum liability coverage available on their auto and homeowners policies, which serve as the deductible for the umbrella policy. If policyowners are ever found liable for an award greater than the limits on their primary policies, the umbrella policy can help pay the difference.

Umbrella policies typically charge a few hundred dollars a year for $1 million of coverage. The benefits, up to the policy limits, can be used to pay jury awards, plaintiff medical expenses, and legal fees, and even to defend against a lawsuit that has no merit.

The appropriate amount of coverage for your situation will depend on personal factors. If your net worth is greater than your existing liability coverage limits, your home, retirement savings, and just about anything you own could be vulnerable in the event you are hit with a judgment that exceeds your current coverage.

We’ve all heard stories about lawsuits with outcomes that left us scratching our heads in disbelief. Although the risk of being sued is still fairly low, so is the cost of owning adequate insurance coverage.

1) Towers Perrin, 2008 (most recent data available)
2) Insurance Information Institute, 2009

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.