Have you ever been leaving home or the office and, glancing at a dark and threatening sky, turned back to grab an umbrella… just in case?
It's the same with umbrella insurance. You buy it "just in case" an accident happens and the cost of the accident is more than your insurance policy provides. That happens more often than you might imagine.
It protects you against the flood of excessive personal liability costs, which can arise in a variety of situations, after the limits of your homeowners, renters, auto or boat insurance are breached.
It also provides coverage for some risks that are not included in standard liability policies.
Let's take a closer look.
Liability and Umbrella Insurance
When you buy a homeowners, renters, auto or watercraft insurance policy, it includes protection against personal liability costs. In very simple terms, if you're held liable or responsible for an accident that causes bodily injury (or death) and/or property damage you have to pay for the costs of putting things right. That's liability.
This might include medical bills, repairs or replacement. In a worst-case scenario, you might be sued for punitive damages. All of these, including legal costs, are normally covered by the personal liability section of your insurance policy.
But -- and it's potentially a big "but" -- the insurer will only pay up to the maximum specified in your policy. This is commonly around $200,000 but it can go as high as $500,000.
That may seem plenty to cover your liability costs. But it likely won’t be in situations like multi-vehicle pileups or injuries caused to several people (food poisoning or dog bites for example). In fact, more than 10% of all vehicle liability claims total more than $1 million.
In these cases, once your policy limit is reached, you're responsible for any additional costs, which could mean finding hundreds of thousands of dollars. You could lose your home, your savings and other assets. And if you don’t have them, your future earnings could be garnished.
On the other hand, a low-cost umbrella insurance policy, which normally provides additional coverage of between $1 million and $5 million, would take care of those additional costs.
Umbrella Insurance Key Points
If you are considering buying an umbrella insurance policy, here are the key aspects you need to know about:
- For the coverage it provides, the cost is extremely low -- between $150 and $300 per year for $1 million of coverage, rising by $50 to $75 per additional $1 million.
- Policies are usually issued by the same insurer who provides your homeowners and/or auto insurance.
- Providers will normally stipulate that you must have a fairly high limit to your liability coverage in your main policies. This could be as high as the $500,000 previously mentioned. This will naturally increase your main policy premiums. To that extent, it can be considered an additional cost for umbrella coverage.
- It generally covers both you and members of your household and that can be wherever they are -- not just on the property.
- Umbrella insurance adds protection not normally found in primary policies, including liability for:
- Slander and libel. This refers to defamatory statements you make about someone or something -- an increasing risk in these days of social media.
- False arrest, detention or imprisonment -- defined as the act of detaining someone unlawfully on groundless accusations that the person has committed a crime.
- Malicious prosecution -- basically launching a claim that lacks legal and factual justification.
- Wrongful entry -- usually applied to forceful and wrongful eviction.
- Mental anguish that you cause to someone else without just cause.
- An umbrella policy may also provide liability coverage for certain restricted dog breeds that are generally not covered in a homeowners or renters policy.
- There are some circumstances where your primary policies my not cover certain liabilities, but your umbrella policy does. In these cases, the policyholder has to pay a deductible before the umbrella coverage starts.
What's Not Covered by Umbrella Insurance
The main exclusions are for injury or damage to yourself and property and liability for injury or damage that you intentionally cause. And that won’t be covered by your main policies either.
You will also not be covered if you have signed some sort of contract in which you accept liability for the consequences of an accident or other damage.
Certain high-risk items, such as jet skis may be excluded from some umbrella policies
Nor are business or professional activities covered -- but see below.
Do I Need Umbrella Insurance?
There's a case for saying everyone should have umbrella insurance in these days when lawsuit settlements and medical costs are climbing ever higher.
But those most at risk include people who drive a lot or ride-share drivers, owners of restricted dog breeds or multiple animals, and those who regularly express opinions either in speech or in writing.
Furthermore, policyholders with high value assets are also considered more at risk. Why? Because courts know they have the assets to be able to meet lawsuits and other liability costs.
On the other hand, if you don’t drive or drive only a little, don’t own a pet, have limited net worth and lead a very limited social life, you may feel you don’t need it. Even then, it's important to discuss this with an expert -- your agent.
Commercial Umbrella Insurance
Umbrella insurance is also available to businesses. It works in a similar way to personal liability umbrella coverage but in this case extends coverage for commercial liability policies.
However, while it may cover commercial general and auto liabilities, it doesn't apply to other types of policy such as professional liability.
If you have questions or you'd like to know more about umbrella insurance, please speak to us at Sandy Garza and Associates.
Not all umbrella policies are the same or offer the same level of coverage, so it's important to work with an independent agent with access to multiple insurers.