Umbrella Policies… Are They Worth It?

Umbrella Policies… Why it May be Reasonable to Have

Dan Ramsey, an independent insurance agent in Alexandria, Va., says the most memorable claim on an umbrella insurance policy he was involved in was made by a small business owner who had purchased a $2 million policy.

"After attending a Christmas party, my client got involved in a fatal auto accident where the other driver was killed," says Ramsey. "My client was given a breathalyzer on the scene and exceeded the legal alcohol limit. He was sued for something like $1.25 million by the claimant's family and was legally liable for the damages, which were paid by the umbrella policy. The client was otherwise an upstanding citizen with no past history of these kinds of events."

Protection Outside the Normal

Although it is easy to presume that only wealthy persons would need that much insurance coverage, you could be flabbergasted at how important an umbrella policy can be for anyone.

 An example would be if your car insurance policy with liability coverage may have you thinking that is it enough abdicate protection in case of an accident. But a potential lawsuit could rapidly surpass the $100,000 or $300,000 insurance payout.

Umbrella policies provide you with an additional bubble of protection, generally $1 or $2 million, above your auto or home owner’s liability coverage.  Here are a few examples where umbrella coverage would’ve been useful:

  • A $1.2 million settlement in New Jersey where an underinsured driver hit a policeman who was completing paperwork at a traffic stop. The driver had to pay legal fees for his defense as well as the settlement.
  • $1.76 million was awarded to a mother and her 8-year-old child in Florida after a wave runner accident injured both of them. The mother needed corrective surgery after the initial injuries were treated.

Although 85 percent of umbrella insurance claims are related to car accidents, the policies offer protection against accidents that occur at your home, too… if Grandma came to visit and fell down the stairs and sued you for pain and suffering, or a balcony decides to collapse during your 4th of July party. Many individuals opt for an umbrella policy because they have a pool or trampoline and may fear the penalties of a neighbor child getting wounded.

Then there's coverage for occurrences you may not have even considered, such as accidents while you're driving in another country, or while you're on vacation and have rented a boat or Jet Ski.

Another significant piece of these policies is protection in a lawsuit against you for slander or defamation of character, or for decisions you might have made as a volunteer member of a nonprofit board. If you regularly blog about controversial topics or rant on social media platforms, an umbrella policy just might be a good idea to protect your assets from a debatable individual who believes you've damaged their reputation. That may sound improbable, but it's not unheard of. In 2009, a high school student sued four other students and their families for $3 million because of derogatory comments the other students made about her on Facebook. While the lawsuit was eventually dismissed, reaching that verdict took two years and required considerable expenditures by the families. An umbrella policy could possibly cover expenditures associated to such grievances.

You Have More to Protect Than You May Think

You may be presumptuous that if you don't have $1 million to lose, you don't need an umbrella policy. Regrettably, if you are sued by someone who falls down the stairs at your home or whom you harm in a car accident, you can be sued for more than just what you have in the bank.

Retirement funds, investments, savings and even your future earnings are at risk if a judge allows someone to garnish your wages to pay off a settlement. (In some states, the equity in your home can be part of the judgment and you would be forced to sell your home to pay someone who sues you.)

If you own a home and have a retirement account or other investments, an umbrella policy of $1 million or more should be part of your financial plan. Most insurance companies offer these plans in increments up to $5 million, and some go up to $10 million.

Insurance companies generally require specific levels of liability coverage on your auto and home insurance policies before they will approve an umbrella policy, usually:

  • $300,000 per occurrence for personal liability, bodily injury, and property damage liability on your homeowners insurance policy
  • $250,000 per person for bodily injury and $500,000 per accident on your car insurance policy
  • $100,000 per accident for property damage on your car insurance policy

The average cost for a $1 million policy is $200 annually -- which you might find a relatively low price for the peace of mind and security it offers.

Feel free to call Insurance Professionals to answer any further questions you may have about umbrella policies or any other insurance questions. Or even getting a FREE quote!