Personal Umbrella Insurance: How It Works

Personal Umbrella Insurance

Personal Liability Insurance provides coverage for you and your family when you experience major financial disasters, perhaps a lawsuit. For example, if you have an at-fault auto accident, your auto insurance pays for a legal defense and any legal judgments or settlements; or if someone is hurt on your property, your homeowners insurance may cover the injured party’s medical expenses.

The Liability coverage portion of your auto policy and homeowners policy have a limit which you select at the time you purchase the policy; in the event of a claim, your insurance carrier will not provide coverage in excess of the policy limit.  For families with significant assets, much higher levels of liability coverage may be necessary.

This is where a Personal Umbrella Insurance Policy comes into play; it is designed to help prevent financial destruction when confronted by a catastrophic event for which the insured family may be financially responsible. Law firms always recommend purchasing an Umbrella Policy.

What Is Personal Umbrella Insurance?

Personal Umbrella insurance provides “excess liability coverage”; this would be a limit in excess of the underlying liability insurance provided by your auto, motorcycle, homeowners and/or personal watercraft insurance policies. Personal Umbrella Insurance is pure asset protection for high net-worth families, it will prevent you from financial distress in the event of a judgment against you for negligence.

What Does Personal Umbrella Insurance Cover?

Personal Umbrella Insurance policies cover a wide range of issues, such as medical bills, legal defense, and other expenses if someone is injured due to the negligence of the insured party. This may include a car accident, guests who are injured while visiting your home, a trip or fall caused by your negligence, or if your pet injures someone.

Umbrella policies may also cover you for incidents not covered by your home and auto insurance, such as being sued for libel, defamation or slander. For precise details of what is covered, the actual policy form must be examined for your specific policy; different carriers may have variations in coverage.

For example:

You are found at-fault in an auto accident. Bills from auto accidents can add up very quickly, especially when more than one person is injured. Your primary policy would adjust the claim and pay up to the limit of coverage, after which your umbrella insurance would take over.

You hit a pedestrian with your motorcycle. It is amazing how traumatic such an incident would be for the pedestrian; he/she will likely look for counsel and a claim is most likely to arise.  Your motorcycle insurance policy will adjust the claim and pay out up to the policy limits, your umbrella insurance company would begin where your underlying coverage is exhausted.

You crash your car into a store. This does happen more often than we’d like to think – it could involve an car crash going out of control or simply a patron select the wrong gear after starting the car.  Your auto insurance policy would pay for the property damage first but most likely the coverage won’t be sufficient to repair the building if there is extensive damage, your umbrella policy will take over where your auto insurance has exhausted the limit of coverage.

Someone is accidentally injured due to your negligence. A recent example in one of the western states involved a customer accidentally knocking a bottle of corn oil off the shelf in a supermarket; an elderly shopper following behind didn’t notice that a bottle of corn oil had been dropped and was leaking, the elderly person slipped and broke her hip. The supermarket with use of the security cameras and the shoppers club system was able to identify the guilty customer and a homeowners insurance claim ensued for personal liability.  In this example, the customer did not have an umbrella policy, the homeowners insurance company paid out the limit of liability and the customer was left uninsured for the balance of the medical bills and damages incurred by the injured person.

What Personal Umbrella Insurance Won’t Cover

Personal Umbrella insurance is a third-party excess liability policy; therefore covering damage and injuries to another party. For example, damage to your own property or medical expenses incurred yourself would not be covered. You would need to consult with your health insurance provider and homeowners insurance company for such coverage.

There are a few other issues not typically covered by umbrella policies:

• Damage to your personal belongings
• Commercial or Business losses
• Criminal acts
• Written or oral contracts
• Intentional acts or injury
• Damage due to nuclear radiation, war, or terrorism

It is equally important to understand that a Personal Umbrella Policy will only apply as an Excess Liability Policy to all Personal Lines Insurance Policies listed as the ‘underlying’ policies when the Umbrella Insurance is purchased.  Commercial Lines Policies need a Commercial Umbrella Policy (CUP) and Personal Lines Policies need a Personal Umbrella Policy (PUP).

How Does Personal Umbrella Insurance Work?

Personal Umbrella insurance takes over when your underlying liability limits have been exhausted. For example:

You are involved in an at-fault auto accident that results in injuries for 4 people. Their medical bills total $500,000, which exceeds your $300,000 in auto liability policy limits. Your umbrella insurance may cover the additional $200,000.

To complete this example further, one of the injured parties is a firefighter who cannot perform his/her job for a year because of the injuries. Since your auto insurance liability limits are exhausted, without umbrella insurance your assets such as your house and savings could be at risk.

Do You Need Umbrella Insurance?

Wealthy households may be better suited for a personal umbrella insurance, although anyone could potentially be involved in a lawsuit. In addition to the usual cases, there may be a few instances which may possibly increase your chances of being involved in a lawsuit:

• You area a board member.
• You have steps, a swimming pool, pond or trampoline at your home.
• You have dogs, horses or other large animals.
• You manage a family trust.
• You host parties.
• You employ household staff.
• You have a high public profile.

 How Much Umbrella Coverage Should I Buy?

When trying to figure out the right amount of coverage, you must consider the following:

• Total value of assets: Your umbrella policy should cover at least your total net worth—an attorney will generally go after what you own.
• Future damages in the event of a loss: If you are found negligent in a lawsuit, your future income earning potential may be heavily impacted.

A lengthy legal trial will be very stressful, this could ruin your reputation whether or not you are found negligent or not. A Personal Umbrella Policy is designed to save your assets which you may have spent a lifetime working very hard to build.

How Much Does Personal Umbrella Insurance Cost?

Personal Umbrella insurance costs on average $291 per year for $1 million in coverage, according to one of the national umbrella carriers.  Although the premium varies in geographic areas, higher premium is typical in highly populated metro areas and much lower premium would be expected in an under populated suburban area.  The example takes into consideration one house, 2 cars, 2 adult drivers with no violations or accidents on their record.  Umbrella policies are written between $1 Million and $5 Million in $1 Million increments, it is usual to find each additional million at a much-reduced rate as compared to the first million of coverage.

When obtaining an umbrella insurance quote, your insurer will base your rate on:

• Where you live
• Your underlying policies
• Your credit history (not applicable in states where this is not permitted)
• Your driving record
• Your risk of filing an umbrella insurance claim

How to Buy Personal Umbrella Insurance

Personal Umbrella insurance is commonly available from insurers that sell auto, home and boat insurance. Most insurance carriers require you to purchase both the auto and home insurance from them before being eligible to purchase a personal umbrella policy.

HDA Insurance Brokerage does have a few Stand-Alone Personal Umbrella Options which don’t require you to purchase any other policy; however, there are minimum coverage requirements for the underlying policies which need to be listed when purchasing the Umbrella Coverage.

You will be required to have a minimum amount of liability insurance in the underlying policies before you can purchase a personal umbrella insurance policy.

For example, you may need the following:

• Homeowners Insurance: $300,000 Personal Liability
• Auto Insurance: $250,000 per person/$500,000 per occurrence for bodily injury and $100,000 for property damage
• Personal Watercraft Insurance: $300,000 in liability