Umbrella insurance sounds like coverage for a rainy day, but what is it exactly? Essentially, it is protection that covers all of your liability risks under one ‘umbrella.’ You still need your primary liability coverages, such as homeowners, auto, and boat insurance, but the umbrella insurance can pick up any damages you owe that go beyond the limits of your other policies. It can also give you added protection for certain risks that are not included in your other policies, such as liability while traveling overseas, renting a boat, or when being accused of slander or libel.
Understanding Umbrella Insurance
To give you a better idea of how umbrella insurance would work in the real world, consider the following scenario:
You are going for a family bike ride on a local trail in your neighborhood. As you round the bend at high speed, you see a jogger in your immediate path, and it is too late to come to a stop or swerve to miss her. You hit her with your bike, causing severe injuries. Later the victim sues you for her injuries, lost wages, and rehabilitative expenses, as well as emotional distress and pain and suffering due to a disfigurement that occurred as the result of the accident. The judgment against you as well as the court costs and legal fees all total approximately $1 million, but you only have $100,000 of individual bodily injury liability coverage in your homeowner’s insurance. Thanks to the umbrella insurance policy you purchased, the remaining $900,000 is covered with no out-of-pocket expense for you.
If this type of scenario seems unlikely, it’s not. Court judgments for auto accidents and personal injury claims often reach seven figures – money most people do not have to spend or wish to spend on an unexpected liability. Even if you have liability protection through your homeowners or auto insurance, you can still be held directly responsible for any excess damages that go beyond the limits of your policy. Umbrella insurance is designed to be a fail-safe when your financial responsibility exceeds your available coverage.
What Umbrella Insurance Covers
Umbrella insurance is strictly for accidental liability damages – not those that are caused by intentional or criminal acts. It also will not pay for your own property damages or bodily injuries. However, it can provide $1 million or more in additional liability damages when you are financially responsible for a third-party’s injuries, property damages, funeral expenses, or other covered loss.
Umbrella insurance is also highly flexible, meaning it can extend your liability protection for auto accidents, personal injury accidents, boating accidents, and more. It can also protect you against liabilities you incur as a result of owning a rental property, traveling abroad, renting a boat, and other scenarios that may not be covered by your primary coverage. If such a situation does arise, it can save you tens or even hundreds of thousands of dollars in income and assets that would otherwise be threatened by litigation.
Should You Purchase Umbrella Insurance?
Most primary insurance policies – even those with the highest available limits – will not come close to paying for a million-dollar judgment, much less one that reaches $2 million or more. If the unthinkable happens to you, it will be too late to go back in time to purchase umbrella coverage. That’s why there is no better time than now to get the protection you need.
While we hope you never need it, having supplemental liability insurance could spell out the difference between financial ruin and being financially secure in the money you have saved and the income you have yet to make. Don’t lose everything because you didn’t have the coverage that an affordable umbrella insurance policy could provide.
We recommend purchasing umbrella insurance if you:
- Have significant assets or income to protect
- Plan to earn income for many years to come
- Are saving for a child’s college education
- Are saving for retirement or a large purchase
- Own a second home or other property
- Expect a large inheritance
- Own rental property
- Have high-risk possessions, such as a pool, trampoline, or dog
- Coach a sports team
- Serve on a non-profit council or board
- And more
Whether you are at increased risk of being sued or have plenty to lose if you are ever sued, umbrella insurance can help ease your mind. It’s not just for the wealthy – it can be for anyone who wants to minimize exposure to risk.
Choosing Your Coverage
We recommend working directly with your independent agent to select your coverage limits. However, most umbrella policies offer coverage that starts at $1 million, although many insurers offer as much as $5 million or more. Usually, a million dollar policy can be had for less than $1 per day, with additional million-dollar increments available for between $50 and $75 per million. That is a great value on coverage considering the low cost of these policies.
If you do decide to purchase umbrella insurance, you may be required to increase the limits on your primary auto, homeowners, boat, and other liability insurance. Our office will be happy to assist you in bringing your current coverage up to par to meet the requirements of umbrella insurance underwriters.
If you are considering umbrella insurance for your family, we want to help you get the coverage you need. Contact our office to request additional information or to get your free quotes. We look forward to serving you soon.