Several personal insurance policies — such as homeowners, renters, condo, and auto insurance — cover your financial responsibility for accidents and injuries when you are deemed at fault. These personal liability coverages are specific to the type of insurance policy. For example, a home insurance policy will not cover your financial liability for accidents you cause using your vehicle, and vice versa.
They also restrict the dollar amounts they provide in protection. A typical homeowners policy provides a baseline of $100,000 in personal liability coverage. States have different minimum mandates for auto liability insurance, but none of the minimums required would be enough to cover a multivehicle wreck with multiple disabilities or a fatality.
A personal umbrella policy rectifies the problem of being underinsured for financial liabilities across types of insurance. It does just as its name implies: it spreads out over the top of your personal auto and homeowners (and other) policies and the liability coverage they provide. However, the liability limits those policies offer may be inadequate for your situation. A personal umbrella policy provides extra dollar protection from financial demands that you or a family member become exposed to as a result of your actions that are deemed to cause a physical, financial, or reputational harm to another party.
The Role of an Umbrella
An umbrella policy is designed to step in once your primary policy has fully paid out. Umbrella insurance will pay for:
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Legal defense
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Investigations resulting from a claim against you
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Compensation you must pay for injuries to others not in your household
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Damage to their property
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Funeral expenses
One umbrella policy can be written to cover all your primary liability policies: home/renters, auto/motorcycle, boat, and RV (recreational vehicle) policies, among others.
Umbrella policies pick up where your primary liability coverage ends and can usually provide $1 million to $5 million in excess liability coverage. The umbrella insurance company typically requires a minimum level of underlying protection from the primary policy, such as $300,000 from a homeowners policy, $250,000 per person in auto liability injury coverage, and $500,000 per accident in car insurance. (These are examples, and your insurance estimate may differ based on the insurer.)
Here are two examples of how umbrella insurance works:
Auto insurance: You — or a household member — are found at-fault in a multicar accident that causes a permanent disability to the head of a household plus injuries to others. Your auto insurance covers up to $250,000 in liability per person injured and $500,000 per accident, but the disability alone could cost $1 million. Your primary auto policy would pay out its full amount, then your umbrella insurance would pay the rest up to the limit of that policy. Your agent will work with you on the dollar amount of coverage that your personal umbrella policy will provide based on your budget, your assets, and your risk.
Home insurance: Personal liability losses that fall under homeowners insurance are much less common than those needing auto liability protection. Nonetheless, there are certain risks that drive up the need and cost for umbrella insurance for home injuries:
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Swimming pool
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Trampoline
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Jungle gyms
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Gun ownership
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Teens/college students
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Certain breeds of dogs
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Exotic pets
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ATVs, drones and water skis
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Koi ponds or other water features
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Second-story deck
For some of these risks, your home insurer may severely limit liability coverage or exclude it, which would require you to get a stand-alone policy for liability associated with that risk. Those most commonly falling under that restriction are ATVs, drones, and watercraft. No matter how you insure them, though, an umbrella policy can be written to sit on top of the liability coverage. Talk to your agent if you have any of these risks so you can meet the umbrella insurer’s minimum underlying protection. And don’t forget to disclose if you have added one of these types of exposures after you received your liability policy.
High-Net-Worth Families Benefit Greatly from Umbrella Insurance
If you have significant personal assets or are famous, you have an even better reason to secure a personal umbrella policy. Lawyers who get involved in personal injury lawsuits are often able to assess the net wealth of those in an accident and determine from there the compensation demand. Even if the allegations are false or the compensation costs are inflated, you could become embroiled in an expensive lawsuit. With juries awarding compensation based more on emotion or societal attitudes than facts — often called “social inflation” — you could face unreasonable damages.
Turn to an Insurance Professional Who Specializes in Personal Umbrella Insurance
While many insurance outlets handle home and auto insurance, it’s best to work with a professional who will look at your assets, your risk profile, your budget, and your household makeup to help you find the best protection. Find a trusted insurance agent near you to help you get the extended liability protection you need.