I am often asked “What is an umbrella policy?”
Simply put, an umbrella policy is designed to protect you from almost everything that your homeowner’s and auto insurance policies do not. It helps to fill in gaps in coverage when the limits of these policies are exhausted.
An umbrella policy is often referred to as excess liability. This coverage kicks in when limits on your homeowner’s or auto policy have been exhausted. It also kicks in if you are sued for something that neither your homeowner’s nor your auto insurance covers.
Lawsuits are filed daily against ordinary folks, with reasons ranging from the frivolous to the justified. Often, people have no extra protection to stop the plaintiff from going after their personal assets. Umbrella insurance will protect you from this type of situation.
How much coverage do I need?
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 an umbrella policy that exceeds his net worth because the coverage is inexpensive.
Most insurance companies require that you have both homeowner’s and auto policies with them. The insurer will require that you maintain a certain level of liability on those 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.
The good news is that coverage is cheap. 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 cars, 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.
Example:
- You are involved in a car accident where you hit a pedestrian. It results in medical expenses that cost more than what your auto policy covered.
- The pedestrian sues you for negligence and punitive damages. Your umbrella policy 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.
Example:
- Coverage includes personal injury protection.
- 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 agent 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.
