A column on personal finance prepared by the Virginia Society of Certified Public Accountants


(July 19, 2004) — In today’s litigation-rampant society, having sufficient insurance coverage to protect your assets is essential. For some people, the Virginia Society of CPAs says this may mean purchasing personal liability insurance. Standard homeowner and automobile insurance policies typically cover your personal liability when an accident happens in your home or on the road. These policies also provide liability insurance in the event you, your children or your pet causes an accident or injury to happen on someone else’s property. However, standard homeowner and automobile policies, which usually provide from $100,000 to $300,000 worth of liability coverage, can come up short. And when they do, your assets, and even your future earnings, are at risk.

What is personal liability insurance?

Personal liability insurance is sometimes referred to as “umbrella coverage” because it adds an extra layer of protection on top of your automobile and homeowner policies. Without personal liability insurance, any liability beyond the coverage limits of your homeowner or auto policies comes out of your pocket.

Who needs personal liability insurance?

The need for personal liability insurance depends on a number of factors, including your vulnerability. Does your family have a backyard swimming pool, teenage drivers or a potentially harmful dog? Do you frequently host visitors or have parties at your home? Other factors that figure into the decision to buy personal liability insurance are your tolerance for risk and the amount of assets you want to protect.

How does personal liability insurance work?

Depending on the type of claim against you, your auto or homeowner policies would be utilized first. Once the basic liability limit under the applicable policy is reached, your personal umbrella liability policy kicks in to cover the remaining costs, up to the policy limits.

Where do you get it?

Any insurer who writes auto and homeowner policies typically sells personal umbrella liability insurance as well. Because personal liability policies are designed to supplement, and not replace, standard coverage, most insurers require that you have your auto and homeowner policies with them as well. In fact, you may even be required to increase the liability amounts on your current coverage to qualify for an umbrella policy.

How can personal liability insurance help you?

In addition to supplemental liability coverage, personal liability policies extend protection to situations not covered by other policies. These include incidents in which you are accused of slander, libel, defamation of character or invasion of privacy.

How much coverage do you need?

Determining how much coverage is right for you is a personal decision that depends primarily on the value of the assets you have to protect. For the protection you get, umbrella liability coverage is not very expensive. The premium you pay will vary depending on your personal circumstances, but $1 million of coverage generally costs $200 to $300 a year.

What is not covered by personal liability insurance?

When evaluating personal liability coverage, be sure to read the policy carefully so you know what is and isn’t covered. For example, if you are a self-employed professional or small business owner, your personal liability policy won’t protect you from liability arising out of a business endeavor. You’ll need a business insurance policy for that.

How much risk are you willing to take?

CPAs agree that even the best financial planning strategy is at risk in the event you face a catastrophic personal injury claim. To protect yourself, make sure you have the right mix of insurance.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at

Lifetime Financial Planning, Inc.

Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional

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