Umbrella Coverage

When you have assets and/or earning power, you become a target for lawsuits directly proportional to those asset and earnings.

That’s a fact! There are few attorneys willing to file a lawsuit against someone have very little net worth. The more you have, the more you have at risk, and therefore, the more you need to protect.

Personal Umbrellas or Excess Liability policies are another layer of liability limits that are on top of your car, home or boat insurance. Let me give you an example of someone – we will call him Tom, who had an at-fault car accident and has a liability limit of $250,000 per person with $500,000 per accident. Three people in the other car are badly injured. After all the medical treatment is complete, one of the injured persons has a total of $120,000 in bills. The second has $50,000, and the third has $420,000 in total. The car insurance will pay only $500,000. The balance has to be paid by Tom. When people are that badly injured, they often sue for disabilities, pain and suffering. Here comes a $3,000,000 law suit. What is Tom to do? The insurance company will pay the legal defense costs, but Tom will have a judgment against him. If Tom has a good job, they will attach his earning. If he has assets, they will lien them. He could loose everything he has worked for. Is this an unlikely scenario? No. It happens too often to be that remote. Everyday, emergency rooms of hospitals fill with serious car accidents. Million dollar judgments are fast becoming the rule rather than the exception, even for seemingly minor situations.

Had Tom bought Umbrella coverage, he would have enough to pay these people, and sleep better at night. That’s why I sometimes refer to this as “sleep better insurance”. If Tom has two cars, a home and two rental properties, he would pay an insurance company about $250 a year for a five million dollar Umbrella. For a guy with Tom’s assets, $250 is a small price to pay.

Excess Liability is not the same as an Umbrella. Excess Liability is insurance in excess of your car, home or other insurance, and usually follows the same condition and exclusions as the underlying policies. An Umbrella is much broader and carries few exceptions. It is not offered by many companies. An example of how that works is when a person does not own a boat, but is operating a boat that has no insurance when the incident occurs. The Excess policy would not help, but the Umbrella would.

Available in amounts ranging from one half to five million dollars, Umbrella coverage increases your personal liability limits by adding protection to your current auto, boat or homeowners policies. Also, if something is not covered in your homeowners policy (like libel), and it's not specifically excluded in the Umbrella policy, you're covered.

Umbrella coverage provides:

Protection for covered claims by others for personal injury or property damage caused by you, members of your family/household, or hazards on your property for which you are legally liable
Personal liability coverage for occurrences on or off your premises
An additional layer of protection above your primary auto policy against auto-related liabilities
Protection against non-business related personal injury liabilities such as slander, libel, wrongful eviction or false arrest
Legal defense costs for a covered loss. Lawyer fees and associated court costs are covered
Worldwide coverage- no matter where you go, with the only exception being situations involving foreign ownership of dwellings or cars

How it works

Depending on the type of accident, your homeowners, auto or boat policy liability limits are used up first, then the Umbrella policy covers all remaining costs (up to the amounts of coverage you purchased). For example, if your neighbor dove into your swimming pool and broke his neck, your Homeowners liability coverage would pay up to the limits on that policy for damages. Your Umbrella policy would cover the rest (including associated legal fees) up to the policy amount that you had purchased.

Most companies require that you carry certain limits on your primary insurance policies (homeowners, auto and boat) in order to receive excess liability coverage. For example, a company may require the following primary liability limits: $300,000 for homeowners, $250,000 per person/$500,000 per accident for auto and $300,000 for boat/yacht coverage.

Some Definitions

Insurance products tend to get loaded down with legal-sounding jargon, especially a product that specifically deals with circumstances for which you are legally responsible. Therefore, a few common definitions might help clear up any confusion:

Personal Liability: Coverage for damages that you are legally liable (responsible) for. This includes incidents occurring at your home and/or caused by you, residents of your household or your pets. Here are some common examples: your dog bites someone, a guest falls down your front steps, your teenage son rough-houses with his buddy and accidentally breaks that friend's leg!

Personal Injury: This all-inclusive definition covers many predicaments. Personal injury can take many forms, including: bodily injury, shock, emotional distress, mental anguish, sickness or disease, or death arising from any of the above. Personal injury also means false arrest, detention or imprisonment, malicious prosecution, wrongful entry or eviction, humiliation, libel or slander, defamation of character or invasion of privacy.

Property Damage: Accidental damage to the property of others caused by you, residents of your household, or your pets.

Exclusions

Often, insurance policies are defined not by what they cover, but by what they don't. This is especially true for excess liability products. If something is not specifically excluded, you're covered. Exclusions vary widely by company. Here are some common exclusions:

Damages expected or intended by insured.
Damages arising out of business or professional pursuits.
Liability assumed under contract or agreement.
Liability arising out of ownership, maintenance, use, loading or unloading of aircraft.
Liability arising out of ownership, maintenance or use of non-traditional watercraft such as jet skis, air boats or air cushions.
Liability arising out of ownership, maintenance or use of most recreational vehicles. Only snowmobiles and golf carts are covered.
Damages to property you take care of, own or use.
Damages covered under a Workman's Compensation policy.
Liability arising out of war or insurrection.

How much is enough?

Obviously, determining how much coverage is right for you is a personal decision. Much depends on the value of the current assets you have to protect. However, there are also other factors to take into consideration. What will the value of your future assets be? Are you involved in activities that put you at greater risk? Do you have teenagers? Do they drive? A good rule of thumb is that you have at least four times your net worth. Obviously, if your net worth exceeds $5,000,000, you will be looking to high-risk companies because the maximum that most companies will write is $5,000,000.

Summary:

I recommend that all of us who own property and have assets get this Umbella coverage. Many of our clients who have two cars and a home are paying less than $100 a year for a $500,000 Umbrella. That gives them up to $750,000 per person when they have limits on the car insurance of $250,000 per person. That to me is the threshold. The whole idea behind having insurance is to protect our assets. My experience has shown that those who are responsible for serious car accidents go through almost as much stress as the victim. During the, sometimes, years waiting for the outcome, people are not only afraid of loosing everything; they develop tremendous guilt about the harm they have caused.