Personal Umbrella Liability Insurance
What is an Umbrella Insurance Policy?
An Umbrella policy is a liability insurance policy that provides an additional layer of liability coverage that sits on top of your other policies that provide liability such as your homeowners, renters, condo, personal auto, secondary homes, vacation homes, classic or antique vehicles, RV, motorcycle, ATV, boat or rental unit policies. Umbrella policies are typically sold in increments of $1,000,000 and most carriers are willing to write Umbrella policies with limits up to $5,000,000.
What does an Umbrella Insurance Policy Cover?
An Umbrella Insurance Policy provides defense costs and compensatory damages awarded as a result of your legal liability from bodily injury, property damage and personal injury. It can be broader than your underlying policies in some situations which I will get into later. However, the general premise behind an Umbrella is that if the liability limits on your underlying policies i.e. personal auto, homeowners, boat policy etc. are exhausted due to a catastrophic event, then the Umbrella will provide additional liability. All of your underlying policies have liability limits which is the most the insurance carrier will pay in the event of one occurrence. Once those limits are exhausted, the Umbrella Insurance Policy kicks in.
Let me provide some examples.
1. An affluent couple decides to purchase a lake house which will pay for itself because they decide to rent it out during the summer months. Since the lake house is right on the water with its own two story private dock, it is kept booked throughout the summer. One summer, a family rents the lake house and brings their teenager along with two of their teenager’s friends to keep their child company. The three teenagers are having fun laying out on the top dock when they start playing a little too rambunctious and one of them trips into one of the dock railings which gives way and the teenager falls and dies. The parents of the teenager sue for $1,000,000 and win but the couple only had $300,000 in liability on their lake house policy.
2. A teenager is driving around with three of her friends in the car having a good time and cruising around town. Believing that she can multi-task, while driving she texts some of her other friends that she is trying to meet up with. She only looks down for a brief second which causes her to swerve slightly into the other lane and hits another vehicle head on. The driver of the other vehicle is critically injured and one of the teenager’s friends is paralyzed for life from the waist down. The family of the driver of the other car sue for $750,000 and the parents of the paralyzed teenager sue for another $1,000,000 for lifetime care benefits. However, the parents of the teenager who was driving only have $100,000 per person for bodily injury on their auto policy leaving a deficit of $1,550,000 just from those two lawsuits.
3. A husband is on his way to work when a person runs a red light hitting the husband’s vehicle critically injuring him. The person who ran the red light didn’t have liability insurance on their vehicle and now the husband’s wife is left to financially care for their child alone. Since the person who ran the red light didn’t have any liability insurance, they won’t be able to collect any monies from that person for income replacement. The wife can turn to her auto policy for Uninsured/Underinsured Motorist Coverage but they only had $100,000 per person for Uninsured/Underinsured Bodily Injury, not nearly enough to cover lifetime income replacement.
In all of the examples above, an Umbrella Insurance Policy could have helped. However, in the last example, the husband and wife would have needed to add the Excess Uninsured/Underinsured Motorist Coverage for the Umbrella to apply which is discussed below.
What options are there for an Umbrella Policy?
Excess Uninsured/Underinsured Motorist Coverage can be added to the Umbrella Insurance policy. This coverage allows you to use your Umbrella limit to extend over your Uninsured/Underinsured Motorist Coverage that is provided on your auto policy in the event that you are hit by someone that either does not carry insurance or does not carry enough insurance to pay for your damages. Using my previous example of the husband who was critically injured by an uninsured driver running the red light, the wife could have used the $100,000 Uninsured/Underinsured Motorist Coverage on her auto policy to help pay for income replacement. However, if she also had a $1,000,000 Umbrella policy with the Excess Uninsured/Underinsured Motorist Coverage endorsement added, she could have sought an additional $1,000,000 from her Umbrella policy. The availability and cost of this endorsement, like everything else, varies per carrier. For those carriers that are willing to offer it, the cost can be as little as an additional $75 per vehicle annually.
Does an Umbrella Insurance policy provide coverage that is not coverd by the other policies?
It can. Some Homeowners policies do not provide coverage for what is called Personal Injury Liability which an Umbrella Insurance Policy typically does. Personal Injury Liability results from lawsuits stemming from allegations of:
- False arrest, detention or imprisonment
- Malicious prosecution
- Wrongful entry into, wrongful eviction from, or invasion of the right of private occupancy of a room, dwelling, or premises that a person occupies
- Oral or written publication, including electronic publication, of material that: slanders or libels a person or an organization; disparages a person’s or an organization’s goods, products, or services; or violates a person’s right of privacy
Do I need an Umbrella policy, and if so, what limit of an Umbrella policy do I need?
While the general rule of thinking is that anyone with significant wealth should have an Umbrella Policy and those that do have one should cover enough liability to protect their net worth, my way of thinking is slightly broader. An Umbrella isn’t just to protect what you have now, it can also be used to protect what you may have in the future. What I mean by that is don’t just consider an Umbrella once you attain a net worth of $250,000, $500,000 or $1,000,000 or more. Regardless of your age and current net worth, you can still have catastrophic events occur that may wipe out whatever personal assets you currently have and threaten your future personal assets as well. You don’t have to wait for you to have a substantial net worth for you to purchase an Umbrella. You can purchase an Umbrella while you are building up your net worth thereby protecting your future personal assets from having a judgement against them if something were to occur during that building up phase. $250 a year for an Umbrella policy is a small price to pay to protect your future assets from something that may occur now.
How much does an Umbrella policy cost?
The price of an Umbrella insurance policy varies from carrier to carrier, your location, how many vehicles you own and if there are any youthful drivers (typically considered youthful if under the age of 22) or drivers 70 or older, driving records and years of experience of drivers on the auto policy, how many homes you own, how many watercraft, RVs, motorcycles and rental units you own as well as what your liability limits are on those other policies. Overall they are relatively cheap compared to the amount of protection you get as well as the peace of mind it brings in protecting your personal assets. However, to illustrate how cheap they are, based on being located in Forest, Va, 2 vehicles, 2 drivers between the ages of 22 and 69 with good driving records and one primary home, the annual premium for a $1,000,000 Umbrella Insurance Policy could be as little as $150 annually depending on what your underlying liability limits are on your personal auto and homeowners policy. If I increase the number of vehicles to 3, increase the number of drivers to 3 with one of them being a youthful driver under the age of 22, one primary home, one vacation home and one boat the premiums on the Umbrella policy would be around $425 annually for a $1,000,000 Umbrella Insurance Policy.
What is required to have an Umbrella policy?
All carriers require that you have certain liability limits on your underlying policies to be eligible for an Umbrella Insurance policy and those requirements vary from one carrier to the next. You aren’t required to have any specific number of policies or type of policies. You are just required to carry minimum liability limits on the policies that you want the Umbrella to sit over. For instance, you could have just a personal auto policy and an Umbrella; you could have a personal auto, a homeowners and a Personal Umbrella; you could have a personal auto, homeowners, boat, motorcycle, rental units and an Umbrella or any combination thereof.
The chart below shows what the general minimum liability limits are that insurance carriers require for liability on each type of policy that you may want the Umbrella Insurance Policy to sit over. However, some carriers may require higher limits.
| Personal Auto | Homeowners/Renters | Motorcycle/RV/Boat/ATV | Rental Units |
|---|---|---|---|
| $100,000 Bodily Injury Per Person $300,000 Bodily Injury Per Occurrence $50,000 Property Damage Per Occurrence | $300,000 Per Occurrence | $100,000 Bodily Injury Per Person $300,000 Bodily Injury Per Occurrence $50,000 Property Damage Per Occurrence | $300,000 Per Occurrence |
Summary
In short, an Umbrella Insurance Policy is the cheapest way to provide higher liability limits for all of your other policies at one time to provide greater protection for you, your family and your future.
