When it rains, many of us reach for an umbrella. Which should give a hint as to what umbrella insurance or umbrella coverage is. It is something to give you some extra protection.
What is Umbrella Coverage?
Umbrella coverage is also called excess liability coverage. In other words, umbrella coverage is liability insurance you purchase over and above what is already included in your home and auto insurance. It is considered “secondary” insurance. There are two types of excess coverage. One, sometimes called PELP (Personal Excess Liability Policy) cuts in only when your primary limit is exhausted. Other policies may provide some additional coverage, such as coverage while traveling overseas or coverage of defamation (not always included in primary insurance.)
It is designed to protect you from high value property damage or injury litigation and to pay for legal defense. Umbrella coverage is not legally mandated and, as a result, most people do not buy it.
Who Needs Umbrella Coverage?
There are a number of reasons which can make umbrella coverage a particularly good buy:
1. You travel a lot, especially outside the U.S. Defending a foreign lawsuit can get very expensive, very quickly. Home and auto insurance may not cover you “anywhere in the world,” whilst umbrella insurance generally does. As umbrella policies cover contractual liability, it can also cover your rental car, boat, etc., when traveling.
2. You own property and other significant assets which could be lost if you are sued.
3. You own something which could increase your chance of being sued. This can include pools, trampolines, dogs, livestock, etc. This is particularly important if your state has “attractive nuisance” laws which can make the owners of pools, horses, and dogs more vulnerable to lawsuits.
4. You engage in activities that make it more likely that you will be “responsible” for an injury to another. These might include coaching sports, being a landlord, hunting, owning a boat, etc.
Benefits of Purchasing an Umbrella
One can make a case that everyone should have umbrella coverage. For example, posting a negative review of a business online (which most of us do at some point) can open you up to a lawsuit. If you do not have adequate liability limits, you can not only lose your current assets but potentially see future earnings affected. While people may not try to sue you at all if you have no assets, it can still happen. A judgment you can’t pay turns into debt which you have to pay off in some other way. This can result in wage garnishment of up to 25%. Which, in turn, can reduce your income below what you need to satisfy your other obligations, such as mortgage payments. Though your primary home and vehicle are protected, if you have a second home it may have to be sold to pay the debt.
Who can get Umbrella Coverage?
To get umbrella insurance, you need to have a minimum amount of liability insurance with your existing home and auto insurance. It can be challenging for people who do not own a car or who rent to get umbrella coverage. Most companies will only sell umbrella coverage to people who are insuring their home, car, or both with them. Some do, however, offer standalone policies.
It’s worth noting that many companies set a minimum liability on the primary policy of higher than the legal minimums for the state.
If you have high value assets, particularly if you have a high value home, you are more likely to be able to get umbrella coverage.
How much does it Cost?
The cost varies somewhat. It depends on the amount and, to some degree, on whether the insurance company tends to deal with wealthy clients (such companies often offer very high umbrella coverage at cheaper rates because they have more clients that need it).
Umbrella policies generally run from $1m to $5m in coverage, but a few companies go higher. A typical $1m insurance policy costs between $150 and $300 a year. This is quite inexpensive for the extra protection you are getting. It is generally sold in million-dollar increments.
What are the Typical Features?
Typically, an umbrella policy has the following features:
- It applies anywhere in the world.
- It pays the difference between the liability limit on your primary insurance and the cost of the judgment.
- It pays for your legal costs.
- It covers your liability for injuries, property damage, and personal attacks.
Many umbrella policies do not cover damage or injuries caused by using recreational vehicles such as jet skis. If you engage in those activities, check with your insurer.
If you are a homeowner or driver, you should consider getting umbrella insurance. The cost is generally low in relation to the peace of mind of knowing you are protected from today’s ballooning lawsuits.
Want more detail? Here is an article, about a 3 to 5 minute read:
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An agency relationship is not created by viewing or reading this blog. Examples of protection are not all-inclusive, and policyholders should refer to their policies for full coverage details. ©Smith-Kenyon Insurance Resources, LLC 2018