Umbrella Insurance Policies: Not just for the wealthy

While you most likely have insurance on your home and car — and you do, don’t you? — you may not be completely covered. If you were the target of a multi-million dollar liability lawsuit, what would happen when your insurance coverage was exhausted? Could you lose your home and all your assets? The answer to the last question, sadly, is yes and that is the point of umbrella insurance policies – they kick in after traditional insurance policies have been exhausted. An umbrella insurance policy helps to protect you from being completely wiped out even if you get sued for an automobile crash or an accident at your home that costs more than your liability insurance company is willing to pay.

Traditionally, these were the choice of wealthy individuals and families, but umbrella policies are gaining in consumer popularity and are increasingly being purchased by the middle class. In this litigious society, a nip from the family hound or a fall on the family trampoline can lead to enormous liability lawsuits that can quickly exhaust even comprehensive insurance policies.

Who should have umbrella coverage? Some experts recommend that anyone with dogs, teenage drivers in the family or high risk yet attractive recreational facilities like pools, trampolines or ATVs should consider an umbrella policy. We recommend that you talk to your independent insurance agent in the context of your total coverage needs, which should be reassessed periodically. Your agent can help you assess whether such a policy would us right for you and can find the right insurance policy, if so. Sometimes, you can even cover the cost of an umbrella policy simply by raising the deductible on your home or auto policies.

According to the Insurance Information Institute, umbrella policies are typically sold in $1 million increments and cost on average between $150 to $300 a year for the first $1 million in additional coverage. The next million will typically cost about $75 annually and about $50 for every million after that. Most insurance companies will not write one unless you already carry liability insurance of about $250,000 on your auto policy and $300,000 of liability insurance on your homeowners policy.

Just like knowing that you always have an umbrella in the car on a rainy day, an umbrella insurance policy can give you extra peace of mind. In this uncertain world, that might be worth a couple hundred dollars a year.

Insurance lingo watch: umbrella policy

Two common insurance questions we hear: “What’s an umbrella policy?” and “Do I need one?”
An umbrella policy is an added layer of liability insurance protection that goes above and beyond your policy’s stated coverage limits. This coverage is designed to kick in once any other coverage has been exhausted. Umbrella policies can extend your liability coverage for personal policies, such as your homeowners and auto, and they can also add a layer of liability protection for commercial and business policies. In the commercial arena, umbrella policies may also be referred to as “umbrella liability” or “excess liability” policies.
Your standard insurance policies should provide adequate liability coverage for most situations that would arise, but in today’s lawsuit-happy age, an umbrella policy can provide an added layer of protection. Should a problem arise, this secondary coverage would pick up where your primary coverage stops.
The Insurance Information Institute talks more about personal umbrella coverage: Should I purchase an umbrella liability policy?
Financial Web offers more on business liability umbrella insurance: Commercial Umbrella Insurance: is it indispensable for your business?
Just a reminder that this is only a brief informational overview. As with any insurance issue, coverage specifics will vary by policy and by insurer. If you think that you or your business might benefit by umbrella coverage, pick up the phone and have a talk with your independent agent. Be it personal or commercial matters, your agent can help you to plan the best combination of coverages to meet your specific and unique needs, and can also shop around to find the best available coverage at the best price.