From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(April 22, 2005) — Standard homeowners’, renters’ and auto insurance policies protect policyholders against certain types of personal liability. However, in today’s litigious society, this basic coverage is often not enough to protect your assets from a devastating lawsuit that may result should you, a member of your household or even a pet accidentally injure someone or damage someone’s property. That is why the Virginia Society of CPAs recommends that you have personal liability insurance.

How it works

Personal liability insurance is sometimes referred to as an umbrella policy because it sits on top of other coverage you have, providing added protection. Basically, it increases your protection beyond the basic levels provided under your homeowners’ and auto insurance policies. An umbrella liability policy also covers libel and slander, which are not covered by standard policies, and pays legal costs for a covered loss, including lawyer’s fees and associated court costs.

Why it pays

No matter how careful you are, one day you could find yourself faced with a major lawsuit. Without personal liability coverage, any liability beyond the coverage limits on your homeowners or auto insurance comes out of your assets and could even put future earnings at risk.

That said, certain family circumstances and lifestyles point to a greater need for expanded liability coverage. Do you entertain often and serve alcohol to guests? Do you live in an affluent area where you could be an easy target for a big settlement? Do you own a home-based business and have employees or clients coming to your home regularly? Are there teenagers in your family who drive? If you’ve answered “yes” to these questions, you may want to reassess your coverage needs.

Coverage and costs

Standard homeowners and auto policies usually provide $100,000 to $300,000 worth of basic coverage. Typically, insurance companies offer umbrella policies with coverage amounts ranging from $1 million to $10 million.

There is no exact science for determining how much liability coverage you should have. The more risk factors in your life style and the higher your assets and earnings, the more you have at risk and the greater the need for additional protection.

For the protection you get, liability coverage is not that expensive. The cost depends on a number of matters such as the amount of coverage, the company issuing the policy and your own personal risk. Generally, premiums range from $200 to $300 a year for $1 million worth of coverage.

Finding liability coverage

Shop carefully. These policies can vary considerably from one insurance company to another. Because an umbrella policy is designed to supplement, and not to replace, standard coverage, it’s likely that you will need to have your homeowners’ and auto insurance with the company writing the policy. Insurance companies also require that you maintain certain minimum levels of liability coverage on your primary policies before you can qualify for an umbrella policy.

Read the fine print

Before accepting a policy, be sure to read it carefully. Personal liability policies won’t protect you in business endeavors. You’ll need a business liability policy for that.

Consult with a CPA

Personal liability insurance can be a critical component of your overall insurance plan. A CPA can review your financial circumstances and help you calculate the level of protection you need.


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


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