Personal Umbrella Insurance

Personal Umbrella Insurance

Personal Umbrella Insurance

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If you watch television, read the newspaper or listen to the radio, you know that lawsuits are an all too common part of life in America.  People sue each other for all kinds of silly reasons.  Some reasons are not that silly.  Often, people sue and win, and if you find yourself in this situation, it can ruin you.

I don’t want that to happen to anybody!  That’s why I’m telling you about personal umbrella insurance.  It’s called personal umbrella insurance because it provides coverage on top or your other types of insurance and protects you above and over their limits, just like an umbrella keeps the rain off you.

You may think nothing like a lawsuit could ever happen to you, but unfortunately it can.  Take Judge Judy and Judge Mathis on television: they’ve made lifetime television careers out of lawsuits and people love to watch their shows. People also love to sue each other!  It’s sad, but true.

The point is, if you are sued and do not have enough insurance coverage, you could spend the rest of your life paying off the costs if a person sues you and they win the case in court.

Be sure the limits of your policies are enough.

Umbrella policies usually range in coverage amounts of $1 million up to $5 million.  Let’s walk through a possible situation where you would need umbrella insurance coverage.  It is scary to think about, but it would be much worse if it happened to you and you found yourself unprepared.  You have a wreck with another vehicle and the driver in this case is a 35-year old father and the passengers are his two children.

The limits of your policy are higher than those required by law, set at $250,000 maximum per person and $500,000 per accident.  You really wanted to play it safe because you know how expensive medical bills can be.  Thankfully, the two children only suffered minor injuries, but the father is critically injured and has to stay in the hospital for over a month, with months of rehabilitation to get better.  He definitely will not be able to work during that time.

Your auto liability insurance covers the $250,000 maximum for him and you are responsible for anything over that.  His wife sues you for $500,000 because his hospital bills and rehab and physical therapy alone are going to cost $400,000.

The other $100,000 is for their loss of wages since neither of them can work.  He is physically unable and she must take care of him.  When they win the case, since you were at fault in the accident, you will have to find some way to pay them and pay for their lawyer, your lawyer and court costs as well.  You may think that the man’s health insurance will cover his medical expenses.  His health insurance company will come after you with a lawsuit because you caused the accident.

It may seem unlikely that this could ever happen to you, but cases like this can and do happen all the time.  Think of how many recent accidents have happened near you.  Someone is usually found at fault and will be responsible for the medical payments to the victim.  Umbrella insurance is a necessity for people with homes and property to protect.  You don’t want to hand over things you’ve worked so hard to get.  If you have an umbrella policy, you won’t have to do that.

Umbrella insurance is flexible.

Umbrella insurance covers you in situations that auto and homeowner’s policies do not.  An example of this is “personal injury” not to be confused with bodily injury.  Personal injury.  Personal injury is when something you say (slander) or write (libel) hurts a person’s name or standing in the community.  Even if what you say is true, they could still sue you.  If he or she sues you and the court says you are guilty of causing personal injury, you may have to pay them for it.  Umbrella insurance covers you in this situation.

Another situation where you might need umbrella insurance is if you hit a brand-new Mercedes and the costs to repair the damage go beyond the limit of your auto policy.  If you don’t have an umbrella policy, you’ll have to pay what the policy doesn’t. Umbrella insurance would take care of that for you.

Umbrella coverage is inexpensive.

Be aware of the unique relationship between your underlying insurance policy limits and your umbrella policy.  Most umbrella policies require that your underlying insurance policies have minimum liability limits.  For a personal umbrella policy that is excess coverage over a standard homeowner and a standard personal auto policy.  The umbrella policy may require homeowner ‘s policy have a minimum $300,000 or $500,000 of personal liability protection.  The umbrella policy may require $250,000 / $500,000 / $100,000 limits of liability. 

Why is understanding this minimum underlying requirement important?  Because the GAP between what your umbrella policy required and what you are carrying on your underlying policies will become your personal responsibility.

Also be aware that most umbrella insurance policies are issued on a follow form basis.  What does this mean?  As always, most insurance policies have exclusions and exemptions to what they do and do not cover.  An umbrella also has exclusions and exemptions and usually follows the same language found in the underlying insurance policy.  The word umbrella can be misleading giving someone the impression that they are covered for absolutely anything they could be sued for.

A better way to think about your umbrella insurance coverage is as extra money available for large lawsuits above what is covered on your underlying insurance policies.  When a certain activity is excluded on the underlying insurance policies, the umbrella policy does not necessarily fill in the gaps.

Also, there are situations where you have coverage on the underlying policy and not have excess insurance coverage with the personal umbrella. 

How are umbrella insurance policies rated and the premium determined?  In general, umbrella insurance policies are relatively an inexpensive way to acquire large amounts of liability protection.  For an average family owning a home and a couple of autos, a $1,000,000 personal umbrella insurance policy usually costs between $150.00 and $250.00.  The cost may increase and be based on your total property picture. The cost may be based on things like this:

  • Do you own a second home?
  • Do you own investment property?
  • Do you own a swimming pool and what type of pool is it?
  • How many total vehicles do you own?
  • Do you have underage drivers living in your household?

Umbrella insurance is cheap because it covers you on those rainy days that don’t happen very often.  An umbrella policy might only cost you $150 to $400 per year and cover you up to $1 million.  Umbrella insurance may just come in handy on a rainy day.  Those rainy days catch us unexpectantly and I am sure that you would want to be covered if the worst-case scenario happened to you.  How much umbrella insurance should you carry?  This is a good question.  There are many important issues to consider when choosing your umbrella limits and not just the cost of the policy.  By consulting with an insurance professional, you will discover the risks you face. 

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