How Personal Umbrella Insurance Protects You: A Few Basics
The threat of a lawsuit is all too real in today’s society. You conceivably could be subject to allegations of liability for bodily injury — for example, as a result of an auto accident that hurts another person. You could even be sued for poor judgment — for example, if you were to post defamatory comments online that caused damage to someone else’s reputation.
If you find yourself named in a lawsuit and have homeowner’s insurance, your policy will offer personal liability coverage that is generally considered broad in scope — but it doesn’t cover everything. Also, the limits available may not prove sufficient to pay the full cost of damages for which you become liable. The same is true for damages caused in an auto accident, watercraft accident, recreational vehicle accident or many other exposures that may be addressed by various liability insurance policies.
Adding a personal umbrella insurance policy may help save you and your family from the financial ruin that could result from defending against and paying for such a claim.
State laws vary on the types of assets that are at risk (and to what degree) in a lawsuit filed against an individual. If you or a family member are sued, your bank accounts, certain investments and your property will likely all be targeted by the injured party’s lawyer. Even your income (present and future) can be targeted through wage garnishments. Asset managers can provide some guidance in financial protection, but many people don’t have the means to employ one.
Liability insurance provides the most realistic asset protection. Unfortunately, though, a majority of policyholders purchase the least amount of insurance that they can legally get away with. For example, most states require a minimum limit of auto liability insurance to lawfully drive a car, and most drivers purchase only that minimum.
The insurance company from whom you purchase your primary personal liability insurance — usually your homeowner’s or auto insurance company — may cap the limit of how much liability insurance you can buy. For example, many homeowner’s insurance companies won’t offer higher than a $1 million limit for personal liability coverage. If you want to increase that available limit, you can do so easily by purchasing a personal umbrella insurance policy.
What’s Peace of Mind Worth to You?
An umbrella policy provides additional layers of liability protection. If the liability limits are exhausted on your home, auto, or other underlying insurance policy, your umbrella insurance policy takes over and provides you with additional protection. The cost is minimal compared to the comfort of knowing you’re covered.
Do You Have Enough Liability Insurance?
Imagine what would happen if your dog was to bite a neighbor’s child, or if there was an accident on your rental property. What would happen if a fire in your condo spread to other units? If any of these things happened to you, there’s a good chance your current liability limits wouldn’t be adequate to protect your assets, or your future earnings.
Liability Insurance Starts When the Others Stop
Once the liability limits are exhausted on your home, auto, or other policy, your umbrella policy takes over and provides a second layer of protection of at least $1,000,000. Higher limits may also be available.
An umbrella insurance policy also pays some claims not covered by your home, auto, or other underlying insurance. The policy covers not just you, but your spouse and all family members living in your household, anywhere in the world. Legal defense fees may also be paid.
More Dollars for Damages & Better Coverage
Most see the primary function of a personal umbrella policy as providing more money to pay for damages resulting from a claim covered by one of your primary (often called “underlying”) insurance policies — usually your homeowner’s and auto insurance. However, some umbrellas can be broader in scope than the primary policy, offering coverage for certain claims that otherwise would not be paid at all. For example, some umbrellas cover certain personal injury claims — such as libel, slander or violation of privacy — that may not be covered by the homeowner’s policy.
Your Best Defense
You’ll likely find, as do other policyholders, that your liability policy’s most valuable function is to pay the cost of defending you against an allegation even if it proves groundless — assuming the nature of the allegation is insurable by your policy. For most people, legal costs are prohibitively expensive, thus adding significant value to an insurance policy that agrees to pay them.
Depending on the type of claim and the primary insurance policy involved, it’s possible that your personal umbrella policy may also kick in to provide defense and cover such costs.
How to Minimize Cost & Coverage Disputes
Many insurance companies offer personal umbrella insurance policies. But if it’s possible, consider obtaining your umbrella policy from the same insurance company that provides your primary insurance. Doing so may not only produce a cost savings but may also limit possible disputes in coverage and defense that could arise between separate insurance companies.
The Bottom Line: Your Insurance Should Grow with You
Your liability exposures evolve as your life evolves. Whenever you build your assets or expand your family, your risk picture changes. A personal umbrella policy can significantly increase your family’s liability insurance coverage for a reasonable cost relative to the protection it offers. For more information, contact your Mountain State Insurance Agent today.