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How to throw a holiday party without getting sued

Throwing a party? Avoid being sued 01:13

It's the holiday season and that means celebrating with friends and family. But if you're planning to throw a big party at your home, you could be opening yourself to the risk of getting sued.

Liability lawsuits are on the rise and attorneys are seeking ever larger awards. Here are three things you can do to manage your risk:

First, consider hosting your party at a restaurant or a banquet hall. If you are hosting a party at your home, keep the walkways and entrances cleared and well lit, hire a bartender, serve food and end the party at a reasonable hour. 

Make sure any porches or balconies are in good shape and able to handle a crowd, suggests David Spencer, senior vice president and insurance company ACE Private Risk Services.

Second, make sure your guests get home safely. Offer taxi services and assign designated drivers. Consider hiring a valet service, which will not only help with parking, but will collect car keys when folks arrive and make sure a guest who has had one-too-many doesn't get behind the wheel.

Finally, make sure you have a personal excess liability insurance policy. This is also known as an umbrella liability policy. 

Don't think the liability coverage that’s automatically included in your home and auto policies is sufficient. Most home insurance policies only cover liability claims up to $300,000 for personal liability and most automobile policies provide up to $250,000 per person and $500,000 per accident for bodily injury.  Amounts covered for property damage are lower, typically around $100,000.

But with a possible lawsuit where damages can be in the millions of dollars, the limits in a typical home or auto policy are simply insufficient. In the case of a larger award, you can lose your life's savings (but not 401k and IRA – these are exempt from creditors) and the equity in your home.

"This is one of the most common areas of underinsurance," says Spencer, who says an ACE survey found 92% of agents think their clients should have more umbrella coverage. "But coverage is affordable." He estimates that a million dollars of insurance might only cost $100 to $200 a year. 

Think of it this way: a personal excess liability policy creates a deep financial pocket to protect you. By doing so, you gain an ally in the form of an insurance company that has resources deeper than your own and the ability to pay for legal defense and claims. 

If you own a home and have an investment portfolio, you should increase the bodily injury limits of the auto insurance policy liability coverage to $250,000 per person and $500,000 per accident and buy personal excess liability insurance of at least $1 million. 

I usually recommend folks buy personal excess liability coverage in an amount that at least equals their net worth, or more. Its a small price to pay for big peace of mind.
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