What is a Personal Umbrella and Do I Need One?

Written by
June 29th, 2010

Liability claims often exceed the basic limits afforded by an average home or auto policy.  These claims are covered by a personal umbrella liability policy.  Personal umbrella liability insurance provides individuals and families with higher limits of liability protection that is excess over any personal automobile, and other liability insurance. Just think of it as an extra layer of coverage, like an umbrella over everything.

Personal umbrella coverage is designed to cover claims that arise out of the activities of a personal or family nature; these types of policies do not cover professional or business activities. Personal umbrella policies are intended for catastrophe-type claims. Not all policies are exactly alike, but in general, the purpose of a personal umbrella policy is not only to provide million dollar excess limits, but to broaden basic liability protection.  To adequately protect the insured a personal umbrella policy will provide an additional amount of liability above the limits on the auto and home policy, but it will also provide coverage for some exposures that are not already covered on the insured’s underlying policy, and it will provide coverage for damages caused by slander, libel, defamation, detention, confinement, humiliation, invasion of privacy, wrongful entry and related allegations.

Personal umbrella liability is written with a minimum limit of liability of $1 Million, with higher limits available. The personal umbrella liability policy pays on behalf of the insured person the amount of damages for an occurrence (the accident) that results in the insured person’s obligation to pay for personal injury, or property damages.

If there is a covered liability claim under your auto or homeowners policy and the dollar amount of the judgment is greater than the coverage limits you have purchased on those policies, the umbrella provides the additional limits of coverage.

Is the policy expensive?
Fortunately, catastrophic events happen to very few people.  That is why the cost of this type of coverage is very affordable.  The average cost is about $150 to $200 a year.  The pricing is based on the number of exposures you have (exposures are the number of vehicles you own, the number of homes you own, if you have boats, recreational vehicles, youthful drivers, etc).

How does it work?
You, or a family member living with you, are the cause of an auto accident resulting in serious injury to the driver in another vehicle and his young passenger. Both the driver and passenger have injuries.  You are sued, determined to be at fault, and the judgment is almost $900,000.  Your auto policy provides coverage in the amount of $500,000.  If you had a personal umbrella liability policy it would pay the remaining $400,000. If you did not have a personal umbrella liability policy the $400,000 would come out of your pocket.  And what if you did not have $400,000 available?  Your assets would no doubt be used to pay the judgment.

You have friends over for a backyard party.  Their 16 year old son, while diving into your pool, breaks his neck and is paralyzed.  The judgment in the lawsuit is $1 million.  Your homeowner’s policy provides $500,000 for liability and responds promptly by paying out the entire $500,000 liability amount.  Again, if you have a personal umbrella liability policy it would pay the additional $500,000.  If you don’t, you will be paying it out of your pocket! And if you don’t have $500, 0000 your assets would be most likely used.

You have a large yard and you use your ATV on your own property.  One summer day your 35 year old neighbor hops on the back for a ride. He either falls off or jumps off hitting his head on a rock and suffers head injury. He never fully recovers. He is married with two young children and three years later he still isn’t able to return to his job and may never work again due to serious brain damage.  The judgment is for $1 million. The policy covering your ATV has a liability limit of $300,000, leaving you with a $700,000 out of pocket amount to pay. If you have an umbrella policy it would pay the additional $700,000.

The answer is YES, you probably do need an umbrella policy.  For most people $150 to $200 a year or $12 to $15 a month is worth their peace of mind.

What exactly are your assets?
• Home and Personal Property
• Automobiles, Recreational Vehicles, Boats, etc.
• 401k, College Savings, and Future Earnings

What is worldwide coverage?
A Personal Umbrella Liability policy has coverage for things that happen anywhere in the world.  Some policies, such as an auto policy, have a territorial limit.

What is the defense coverage?
The policy pays for the cost to defend any claim or suit for damages because of personal injury, or property damage arising out of the occurrence which is covered by the policy.

Comments

2 comments

  1. what if you had a back up and only had the sewage back up of $5000 will this type of insurance cover if the damage excess your home policy?

    Comment by larry on August 18, 2010 at 9:33 am
  2. Thanks for your interest and reading our article about Umbrella coverage. The answer to your question is that NO, having umbrella coverage will not provide you with any coverage for back up. The umbrella only provides liability coverage. There is nothing for damage to the home.
    However, you are able to purchase different levels of coverage for back up of sewer and drains and sump pump overflow. $5,000 coverage is about the lowest limit you can purchase. Many of our companies will allow you to have much higher coverage than that.

    Comment by Nancy Engelbert on August 18, 2010 at 10:05 am
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