What is a personal umbrella policy and why you need it

umbrella insurance

Most insurance claims are settled by your auto or home insurance policies and could be as simple as a quick settlement. However, some claims end up in law suits that could last a long time, involve attorneys and trials and end up costing a lot more than the limit of your primary auto or home policy.

When the judgements and attorney fees surpass the liability limit of your underlying policy, the umbrella policy facilitates an additional layer of coverage which guarantees that you will not lose your savings in the process. Umbrella policies also covers claims arising from false imprisonment, libel and slander lawsuits.

Umbrella policies are usually not as costly as most of us think. Some carriers start at $175/year for a $1 million coverage! So it is important to ask at least for a quote. An umbrella policy also qualifies you for a package credit on your home and auto policies. This means that by obtaining an additional $1 million coverage, your auto and home rates would be lowered.

One important thing to keep in mind if you are thinking about an umbrella policy is the underlying liability limits on your home and auto policies. Most insurance companies require higher liability limits to qualify for an umbrella policy usually starting at $250,000/$500,000.

Umbrella policies usually cover courts costs, personal injury, bodily injury, landlord liability and injury to reputation due to slander, libel and false imprisonment. An incident does not need to involve your vehicle or your home to be covered under the umbrella policy.

However, personal umbrella policies do NOT cover liability incurred through professional or business activities, liability related to armed conflicts or war, physical damage to your property, any liability you agreed to assume, damage to that you intentionally caused, injuries sustained by contracted workers and flood damage. So make sure to review the umbrella coverage with your agent and understand these exclusions and how they might affect you.

Once you understand what an umbrella policy is, what it covers and does not cover, the question is usually: do I need one?

The main rule of thumb to figure out whether you need an umbrella policy is when the value of your assets and your home equity is greater than the liability limits of your homeowner’s or auto policies so you have enough coverage to avoid losing your assets in a lawsuit.

In a lawsuit, a jury could award the victim a settlement higher than your liability limit as these limits are not taken into consideration by the jury.

Lawsuits are extremely common in our society today and everyone is at risk of being sued at any moment for anything. However, some people are at a higher risk for lawsuits and thus should most likely consider getting an umbrella policy. Some reasons you might be at a higher risk include:

  • Driving a high end luxury vehicle
  • Having a home staff you employ on premises
  • Owning a dog
  • Usually hosting gatherings and home parties
  • Owning rental properties, vacant land or pasture
  • Owning a trampoline, swimming pool and recreational vehicles such as a boat, ATVs, jet ski, dirt bikes …
  • If you are a public figure and known in the community especially if you are know for your assets and wealth as this simple fact could usually attracts lawsuits

These are just examples of when you might be at a higher risk but this list is by no mean inclusive. An umbrella policy facilitates confidence if you think you might be a higher risk. It ensures your retirement nest remains secure especially that most umbrella policies are inexpensive for the amount of coverage you are receiving.

If you own a business, it is important to note that you would need a business umbrella policy as a personal umbrella policy would not extend coverage to any liability arising from your business activities.