Disclaimer: I am licensed in the state of Arkansas as an Insurance Agent. Please refer to your own agent in your own state before assuming this information automatically applies to you as insurance laws vary from state to state. This is intended as a basic overview of Umbrella Insurance Policies.
If your personal insurance policies are nearby, grab them! You may want them to follow along. If they are not nearby, that’s ok too!
You may or may not have any idea why you clicked on an article about an Umbrella policy. If you do, please shake your insurance agent’s hand very well the next time you see her. If you don’t, you should look her in the face and ask why she hasn’t asked you about an Umbrella.
I want to explain first, the assets that may require you to have an Umbrella Policy. Here is a basic list:
If you don’t own any of those items, and your net worth is fairly low, you can stop reading now, because the odds are, you don’t NEED an Umbrella. However, if you own any of those items keep reading.
An Umbrella Policy is additional Liability Coverage. All of the items I listed above should have liability coverage on their policies. For instance, look at your auto policy. The coverage labeled Bodily Injury is your liability coverage. It’s what will pay out if you harm someone else in an auto accident. If you look at your Homeowners policy, it should be labeled as coverage “E”.
I will use my own auto policy for an example. I have the following Liability limits on my auto policy:
$250,000 Bodily Injury per person/$500,000 per accident.
That means if I cause an accident and you are hurt, my policy will pay up to $250,000 PER PERSON and $500,000 per ACCIDENT. For example, if you had 3 people in the car, and all 3 had $100,000 in medical bills, my auto policy would pay with no problems. However, if 2 of you had $50,000 in bodily injury each, and the 3rd person had to be air lifted and spend time in ICU for $300,000 in charges, I am in trouble. The 3rd person would have to sue me for the extra $50,000 to be compensated for all of their bodily injury. NOT FUN.
Unless you have an Umbrella policy. The minimum amount of most Umbrella policies is $1,000,000. The Umbrella is IN ADDITION to your other liability coverage. In the example I listed above, I would not have to be sued for the extra $50,000 because my Umbrella would pay it.
Let me give you another example in regards to your Homeowner or Renters Policy Liability Coverage. Let’s say you have $500,000 in liability insurance on your Homeowner policy. You throw an amazing pool party at your home that lasts well into the evening. Someone decides to show off and does a perfect dive, right in to your 5ft deep pool and breaks his neck. He’s now paralyzed for life and decided that it was YOUR fault for not posting a “No Diving” sign. That $500,000 is not likely to cover his pain and suffering for the rest of his life.
However, if you have an Umbrella policy, your Homeowners Insurance is going to pay $500,000 and then the Umbrella would pay another $1,000,000 on top of that leaving your assets intact. You are still financially whole because “you” didn’t lose any money.
So, what’s the catch to this kind of policy?
Your policy limits on auto, home, boat, motorcycle etc. will have a higher requirement. You don’t get to buy the “cheapest” insurance out there and buy an Umbrella for $1,000,000. Most Umbrella policies require your underlying limits (your other policies) to have a $500,000 pay out. There are exceptions, so check with your own agent!
What’s the bonus of an Umbrella Policy? THEY ARE CHEAP CHEAP CHEAP! I have seen an extra $1,000,000 in coverage for as low as $100 PER YEAR.
Do you have an Umbrella Policy? Has your Insurance Agent talked to you about one? Tell me about your experiences!