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Covering Up

February 29, 2012

Financial Planning - 04/01/12
By Nancy Mandell

Driving on a major urban road in heavy traffic one rainy night, a woman rear-ended the car ahead of her. With no suitable place to pull over nearby, the two motorists got out of their vehicles to exchange insurance information. They were standing between their cars when a third driver hit the woman's car, trapping and seriously injuring the first two drivers. Vehicle damage came to about $2,500. But medical injuries, loss of wages, and pain and suffering resulted in a $5 million settlement, says Ross Buchmueller, president and CEO of insurer Privilege Underwriters Reciprocal Exchange.

Fortunately for the victims, the third driver carried the company's personal excess liability policy, which can cover up to $20 million in damages. "Five million dollars," Buchmueller notes, "and this was not even a case of recklessness - driving drunk, texting or speeding."

His company is one of a handful of insurers, including Fireman's Fund, Chubb, ACE and Chartis, whose niche is the top 1% to 2% of wealthiest Americans. The asset protection feature of umbrella liability insurance policies is not well understood by many clients or their advisors, the owners of the niche insurers say. But with lifestyles that often include expensive toys like yachts and jet skis, perks such as full-time domestic help and commitments like seats on nonprofit boards of directors, their deep pockets make the 1% attractive targets in any legal action.

Without appropriate liability coverage - which most experts place at 100% of net worth - a single incident could destroy an entire portfolio. Given the risk, insurers are trying to forge bonds with advisors and make them aware of the costs and benefits of this type of coverage.

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