Why Umbrella Policies are Important: What to Know In a Sue-Happy World
Written by Ann Tiernan
With all the stress of modern life, the last thing you should have to worry about is whether your insurance would fully protect you if you faced a lawsuit. An umbrella policy is an economical way to add peace of mind to your general liability insurance portfolio of home and auto coverage.
Why Is Carrying a Liability Umbrella Policy a Good Idea for Homeowners?
Most homeowners have a homeowner’s insurance policy, either because their mortgage lender requires them to carry one or because it’s just a good idea. These policies aren’t one-size-fits-all; you should make sure you have appropriate coverage for how you and your family use your home in addition to its value. If you rent out some or all of your property or use it for commercial purposes, for example, you may need more coverage than usual.
It’s generally unnecessary for a homeowner to carry millions of dollars of general liability insurance coverage on their family residence. However, accidents can happen that cause serious bodily injuries or harm. A mail carrier could trip on a dangerously icy sidewalk; an overserved guest could cause a terrible auto accident on their way home; a child could suffer debilitating long-term injuries as a result of a bite from the family dog. If a homeowner is found liable for damages to an individual or their personal property that exceed their policy’s covered loss amount, the financial obligation can be devastating. They may have to use up savings, spend their retirement accounts, or even sell their home to pay the balance of a judgment or jury verdict.
Umbrella insurance coverage kicks in once your homeowner’s policy coverage is exhausted, paying up to its policy limit. For a relatively low annual premium—usually only a few hundred dollars—you can obtain an umbrella policy with a liability limit of $1 million or more. This extra coverage can help you pay for excess judgment amounts related to claims on your homeowner’s policy, but it also covers much more.
Why Should I Consider Personal Umbrella Insurance?
Even if you don’t own your own home, personal umbrella insurance coverage can be a good idea. Umbrella insurance covers you and members of your household against many types of lawsuits, including not only premises liability claims but also other personal injury claims, auto collision claims, claims related to damage to other people’s property, defamation (libel/slander), malicious prosecution, wrongful entry, invasion of privacy, and more.
Many cars on the road today are significantly more valuable than those in decades past. Hybrid gas-electric models can have components costing many thousands of dollars to replace. If you are found liable for an accident involving multiple high-value vehicles, you may face a judgment far exceeding your car insurance policy’s liability coverage. If multiple drivers suffer personal injuries above your policy’s medical coverage limits, you may face even higher out-of-pocket obligations. These damages can add up quickly and can be financially devastating. Having umbrella coverage can protect you and your family members from financial ruin.
If you own your own business, a commercial umbrella coverage policy can supplement other types of small business insurance policies. For family farmers, umbrella coverage can literally save the farm in the event of an unexpected natural event or lawsuit. In addition to paying damages up to the policy’s liability limit, in some circumstances, umbrella insurance policies can cover legal costs (the costs of defending against a lawsuit).
What Does an Umbrella Policy Not Cover?
Umbrella coverage usually requires that you carry a healthy amount of homeowner’s insurance and auto insurance coverage (often the maximum liability coverage available under your policies) before you can purchase an umbrella policy. Umbrella policies do not cover excess damage to your home or possessions, including disasters, fires, weather, and other things that may be covered by your homeowner’s policy; the coverage applies only if you are found liable for damage or injury to others. It does not cover your own medical expenses or personal property damage (such as damages to your own vehicle as a result of a collision).
Umbrella policies generally do not cover intentional acts, including breach of contract, sexual harassment, or criminal activities. Many umbrella policies also exclude some or all boats or require you to carry boat insurance policies before accepting coverage.
How Much Liability Insurance Do I Need?
Carrying umbrella coverage is a great way to improve your financial security. Even if you don’t have assets significantly higher than the limits of your auto or homeowner’s insurance policies, you may want to purchase a policy to protect what you have (and your potential future earnings). Jury awards often exceed insurance policy limits, and the long-term consequences of a significant judgment can ripple through many aspects of your life.
Determining how much umbrella insurance coverage you need depends on your lifestyle. Certain factors increase your risk of being involved in a lawsuit. These include having teenage drivers in your household, owning property, renting out a property (both acting as a landlord or providing short-term rental property), employing household staff like a nanny, personal assistant, or gardener, having a trampoline or hot tub, owning a dog or other animal, and hosting parties (especially those where alcohol is served). Being a public figure or celebrity, or being involved in a polarizing public activity, can also increase your risk of being sued.
Most insurance companies’ umbrella liability policies start at $1 million in coverage. According to the Insurance Information Institute, this typical policy averages $150 to $300 per year, with additional coverage available for an additional annual cost. Bundling this coverage with other policies, such as homeowner’s insurance policies, auto insurance coverage, and life insurance policies can make it even more affordable.
Talk to your insurance provider today about adding this invaluable coverage for yourself and your family.
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