What Is and Why do I Need Umbrella Coverage?

umbrella protecting houseWritten by Corine Cowles, Personal Lines Manager

To err is human; to purchase an umbrella policy is smart. An umbrella policy provides extra liability coverage over, and in addition to, other insurance policies you have purchased, such as commercial insurance policies for your business or personal insurance policies for your home(s), auto(s), and toys (boats, motorcycles, snowmobiles, all terrain vehicles, etc.). The liability limits you carry on your insurance policies protect your assets in the case you cause bodily injury or property damage to someone else AND it’s proven in a court of law you are negligent for those bodily injuries and/or property damage. This article will focus on personal insurance and reasons for purchasing a personal umbrella policy. Some personal insurance liability exposures are:

  1. You or another driver in your household (like an inexperienced operator) cause an auto accident with significant bodily injury or death in another vehicle in addition to property damage to another automobile
  2. Your tenant (or someone visiting your tenant) is injured on your rental property and is successful in proving in a court of law you are negligent for their injuries
  3. Your dog bites an invited guest inside your home and causes permanent bodily injury damage; you are sued for not only the cost of the medical bills but also pain and suffering

I’m sure you can think of numerous other examples where an individual could be legally liable (accidents around a swimming pool, on a trampoline, on a hunting trip, etc.).

If it is proven in a court of law you are negligent for an unfortunate accident, the liability limit on your primary insurance policy pays out first (homeowners, auto, landlord, recreational vehicle, etc). These policies are referred to as underlying policies with respect to an umbrella policy. If the liability limit on your underlying policy is exhausted and there is still more damages (money) to be paid, your umbrella policy then pays up to the limit on your umbrella policy. For example, if you have $500,000 liability limit on your homeowners policy, a $1,000,000 liability limit on your personal umbrella policy, and the damages from your lawsuit involving a dog bite scenario total $800,000, then the $500,000 liability limit on your homeowners policy will be paid out first, and the additional $300,000 would be paid by your umbrella policy. If you have not purchased an umbrella policy, the additional $300,000 will have to be paid out of your pocket!

If right now you are thinking these numbers are excessive and you don’t need this extra liability–remember how quickly medical costs can add up in serious injuries as a result of an auto accident and also the cost of a high-end vehicle you may have totaled. Being sued for pain and suffering can also cause the damages paid due to a lawsuit to be exorbitant. The fact is, if you own an automobile, motorized toy, property, pets, or have children, you have a liability exposure that you must acknowledge and purchasing an umbrella policy is simply peace of mind. An umbrella policy protects your assets instead of having to use your nest egg from a savings account or having to sell your home in order to pay what you owe.

The amount of liability coverage you choose to purchase should adequately protect the value of your assets, which are vulnerable to a lawsuit. The good news is the cost of an umbrella policy is very reasonable! A personal umbrella policy that includes a liability limit of $1,000,000 could be as low as $175 a year depending on how many underlying exposures you own. The only way to know for sure how much your umbrella policy will cost is to request a personal umbrella quote from your knowledgeable personal lines insurance agent. Purchasing an umbrella policy is a wise investment in a world full of liability exposures.

Call us today for a free quote!