What is Umbrella Insurance? Do I need it?
Umbrella insurance, also known as a personal liability policy or a personal catastrophe policy is a form of excess liability protection for extreme liability situations. The Umbrella policy functions like an umbrella, in that it provides additional coverage on those rainy days, when necessary. It is intended to be utilized after your auto or home liability limits are exhausted.
Why would you need additional liability coverage?
Great question. With umbrella coverage, we are talking big liability lawsuits. Most situations involve major bodily injury like a bad auto accident or an injury that occurs at your home and causes property damage as well. An auto insurance policy usually maxes out potential payouts around $250,000, and a typical home insurance policy has $300,000 in liability coverage. A typical umbrella policy provides anywhere from $1,000,000 to $5,000,000 in additional liability coverage, and is designed to cover liability situations in excess of your auto or homeowner’s policy.
Wow, all that coverage seems like overkill doesn’t it?
Well, here is an example to show you why it is not. You cause an auto accident that severely injures a 40-year-old construction worker who will not be able to return to work because of this accident. Now, you are being sued. Not only will you be responsible for both his injuries and pain and suffering, but you will also be responsible for his future earning potential. If he earns a modest $50,000 annual salary and has 25 years until retirement, we are talking $1,250,000 for just earning potential. Without an umbrella policy in place, a situation like this could be financially devastating.
What if I don’t have an umbrella policy, and I find myself in the above situation?
Your auto policy will pay out its full liability limit. For example, if your liability limit is $250,000, and you have a $1,250,000 liability exposure, your liability policy will pay $250,000, and you will still owe $1,000,000 or more. The courts will settle this dispute by dissolving your assets and your home, savings account, checking account, and vehicles could all potentially be dissolved.
What if I don’t have a large savings or a home?
You’re still in trouble. The courts can dissolve your future earnings and put all of your future paychecks at risk. Even if you have assets, you could still lose your future wages if the value of your assets doesn’t cover the costs.
Who is at the highest risk?
Although everyone potentially faces a high liability risk, there are certain clients who could be more susceptible to these types of situations. As a rule of thumb, the more assets you have, the more you have to potentially lose in a lawsuit. So, all high net worth clients should consider an umbrella policy. You should also consider an umbrella policy when you are legally responsible for the actions of another; like your son or daughter cause a severe accident or a tenant burning down both your home and a neighbor’s home.
What else does Umbrella Insurance cover?
The excess liability over your existing auto insurance and home insurance is the main protection you are purchasing, but most umbrella policies also include additional coverage for things specifically excluded auto and homeowner policies. Wrongful arrest, invasion of privacy, libel, and slander are typically additional liability related coverage in an umbrella policy. Most umbrella insurance is worldwide, providing liability protection if you rent a car on vacation in Mexico or anywhere else around the world. In addition to the actual amount of coverage on the umbrella policy, legal fees are also covered. Because the insurance company has $1,000,000 to $5,000,000 on the line, they want to make sure the best lawyers are defending you in a liability related lawsuit.
What is NOT covered on an umbrella policy?
Crime doesn’t pay, and neither do insurance companies when you commit one. If you intentionally engage in a criminal act including most DUI scenarios, you’ll find your umbrella policy typically excludes this. Flood coverage is not included either. If you are interested in flood insurance, it can typically be attained through The National Flood Insurance Program.
How much does an umbrella policy cost?
An umbrella policy is often one of the best insurance investments you can make. Just like all insurance rates, it depends on your risk. If you own multiple homes, multiple vehicles, and/or have young, inexperienced drivers on your auto insurance, the price is typically a little higher. However, the average umbrella policy sold by Bridge First Insurance is $150-$200 annually for $1,000,000 in additional coverage.
How much coverage do I need?
A quick way to calculate the adequate umbrella coverage amount is to add up your assets. Add the value of your home, rental homes, automobiles, savings, and checking accounts. You want to at the very least protect the assets you already have as well as any future earnings.
How do I buy an umbrella insurance policy?
Consult your insurance agent of course. Most companies will have some requirements for your underlining auto and home liability and will want either one or both of those policies to be written through them. Often times, there are minimum required limits for your auto insurance ($250,000 per person in liability coverage and $300,000 for home insurance). So, you may have to increase your liability coverage there first. Most people are surprised to find out that small liability coverage increases on their policies also increase the price.
Want to learn more about umbrella insurance? Contact a Bridge First Insurance agent today!
Jack has achieved success in the insurance industry through a consultative and honest approach to clients. He designed this approach around educating clients on important coverage and allowing them to decide what policy would best fit their insurance needs. In 2013, Jack and co-founder Dave Zappacosta, established Bridge First Insurance, as an independent insurance agency operating in Virginia, DC, and Maryland.