How an Umbrella Policy Can Save You from Ruin

May 04, 2021

An umbrella policy is designed to protect you from almost everything that your homeowner's and auto insurance policies do not, as well as fill in gaps in coverage when the limits of these policies are exhausted.

Lawsuits are filed daily against ordinary people just like you, with reasons ranging from the frivolous to the justified. More often than not, people have no extra protection to block the plaintiff from going after their personal assets in the lawsuit. Umbrella insurance will protect and insure you from this type of situation.

An umbrella policy is often referred to as excess liability. This excess liability coverage kicks in when the underlying limits on your homeowner's or auto policy have been exhausted, or if you are sued personally for something that neither your homeowner's nor your auto insurance covers. Depending on the insurance company, you can purchase anywhere from $1 million to $5 million worth of excess coverage, and sometimes as high as $10 million. 

The amount of coverage you select should depend on how much you are worth. If you have $5 million worth of personal assets, you should get at least a $5 million dollar umbrella policy. It is not uncommon for someone to buy a $5 million or $10 million umbrella policy even if that number far exceeds their net worth, because generally, the coverage is so inexpensive to purchase.

Most insurance companies will not offer you umbrella coverage unless you already have both your homeowner's and auto policies with them. Our agency does have exceptions including stand-alone Umbrella policies.  Also, the Umbrella policy insurer will require that you maintain a certain level of liability on the homeowner's and auto policies in order to qualify for the excess policy.

Usually, you must maintain at least $250,000 of bodily injury liability per person, $500,000 per accident, and $100,000 for property damage for your autos, and $500,000 of liability for your home. 

As was mentioned before, coverage is relatively inexpensive.  It is possible to obtain $1 million worth of excess liability for about $150 to $300 per year. The more cars and homes you have, the higher the premium, but the cost is still low.

In addition to your home and automobiles, liability associated with any other conveyances you may have, such as boats, motorcycles and other recreational vehicles, may also qualify for coverage under the umbrella, depending on the insurance company.


When to tap your policy

You are probably wondering when the umbrella coverage would ever be used. For example, if you are involved in a car accident where you hit a pedestrian who was walking on the sidewalk, resulting in medical expenses that cost more than what your auto policy covered, the umbrella policy would kick in.  Think about this; most of us never think we’ll be reckless enough to hit a pedestrian on a sidewalk, right?  But how many times throughout the winter do we hit those unexpected patches of black ice?  We do not have to be bad drivers to be found liable for causing significant bodily injury to others.

And, in the event you are found liable, and that unfortunate pedestrian decides to sue you for negligence and punitive damages, your umbrella can be utilized to cover your legal expenses and to pay any judgments levied against you.

Excess liability also covers you for all sorts of things that have nothing to do with your cars or homes. For example, coverage includes personal injury protection, which includes false arrest and imprisonment, malicious prosecution, defamation, invasion of privacy, wrongful entry or eviction. 

Also, some umbrella policies provide coverage if you are sued in connection with any charitable boards or organizations of which you are a member. You may have to contact your insurance company and pay an extra premium for this type of coverage.

Remember, without an umbrella policy, your personal assets are vulnerable in any lawsuit or legal action. The risk of a multi-million-dollar lawsuit greatly outweighs the cost of protecting yourself with an umbrella policy. Give us a call to find out what type of policy might be right for you.