Breaking out the holiday spirits? Make sure you have enough insurance

If you're hosting a holiday party this year and think your homeowners insurance provides enough coverage, think again.

Let's say you serve alcohol. Your guests have a grand time, but one partygoer leaves the celebration drunk and crashes into someone's home. The next thing you know you're involved in a lawsuit -- all because of your intoxicated guest.

It's likely that you don't have enough insurance to cover the legal fees and damages you could be forced to pay. According to a new study released by Trusted Choice, a group of more than 7,000 insurance agencies and financial firms, most party hosts are underinsured.

Homeowner policies typically provide a minimum of $100,000 worth of liability insurance, but to insure yourself against larger liabilities you need an umbrella policy.

"I think a lot of people think that their friends will not sue them, but the reality is that it won't be their friends. It's going to be the person that they injured," said Madelyn Flannagan, a Trusted Choice vice president.

Trusted Choice estimates that of the 28.5 million people planning to host parties from now until the Super Bowl, 21.3 million do not have a personal umbrella insurance policy. Umbrella policies are usually sold in increments of $1 million, and normally cost $150 to $250 a year per $1 million of coverage.

Thirty-five states and the District of Columbia have enacted laws, or have case law, that allows a host to be held liable for any damage and injuries caused by a drunken driver, according to the Insurance Information Institute. The laws vary from state to state. For example, many specify that the drinker must be "obviously" intoxicated; in some jurisdictions, the laws focus on incidents involving minors and alcohol.

In the Trusted Choice survey, a majority of the respondents said they believe that a party host should be held responsible. Having said that, however, most haven't purchased an umbrella policy.

"People don't buy umbrella policies because they think they have enough coverage from their homeowner and auto policies, but they don't," Flannagan said. "The high dollar value of jury awards, coupled with skyrocketing healthcare costs, means one lawsuit can easily exceed the liability limits on the average policy."

You only need one umbrella policy, which can be added to a basic homeowners or auto insurance policy. This insurance usually kicks in after you've exhausted the coverage on your homeowner or auto policy.

Typically, a personal umbrella policy covers you for any number of accidents or claims that occur during the policy term. For example, if you have a $1 million limit, you may be covered for several claims at $1 million each. However, to limit their liability, many insurers are writing umbrella policies that impose a maximum dollar amount that may be paid.

There is no standard personal umbrella policy. The types of claims covered vary by insurer, so you should shop around.

While it's good to have insurance, there are some things you can do to ensure you don't have to use it. Here are some tips from Trusted Choice:

Shift the liability by hosting your party at a restaurant or bar that has a liquor license.

If you serve alcohol, arrange transportation or overnight accommodations for guests who appear intoxicated.

Serve all drinks yourself (or hire a bartender) so you can monitor how much guests are drinking, and stop serving alcohol an hour before the party ends.

Don't serve alcohol. This year, AAA has printed a special edition of its "Great Pretenders Party Guide," featuring some of the best nonalcoholic drink recipes from its top-rated restaurants. To get a free copy, visit AAA.com.

Finally, ask yourself this: Would you stop serving your guests alcohol if you thought they'd had too much to drink?

An amazing 8 percent of respondents in the Trusted Choice survey answered either no or said they didn't know. No matter how much umbrella insurance those people get, they should never host a party where alcohol is served.

Michelle Singletary is a columnist for The Washington Post.