Personal Umbrella insurance is additional liability insurance, designed to pay out on top of your existing auto and homeowner’s/renter’s insurance policies. For example, you may only have $300,000 in liability coverage on your car insurance. If you are hit with a claim of $1,000,000, you would be on the hook for $700,000 yourself unless you had an adequate umbrella insurance policy.
In addition, an umbrella policy can also “fill in the gaps” by providing coverage for other incidents like liability for rental properties or being sued for slander or libel. Imagine working and saving for decades, only to have all of it taken away with one incident.
Frequently, when I give this simple explanation, I am told, “I do not own anything nor do I have any money in the bank for anyone to take.”
Here are the questions I then ask:
Do you have a job?
Do you have a retirement account?
Do you own a car?
Do you own a home?
Does your spouse have any assets or property?
Does your spouse have a job?
At least one of these questions likely has a yes answer.
This means a lien can be put on your salary, disability benefits, 401(k), or any future salary you may earn, or you may be forced to sell any or all of your property or your spouse’s property to pay for the judgment against you.
Additionally, many people forget about legal fees. Sometimes the attorney and investigation fees are more than the final judgment awarded. These fees can exhaust the primary liability limits on your policy very quickly.
If these facts don’t alarm you into purchasing an umbrella policy, let’s examine some examples to make it even clearer:
“Your son is away at college with one of the family cars, and he lends the car to one of his friends. The friend gets into a four-car accident; two of cars involved had no insurance and five people are seriously injured, including the friend who had borrowed the car. Did you know that if your child gives permission for someone else to drive your car, it’s the same thing as you giving permission, and therefore you are liable for that driver’s actions as owner of the vehicle? While the driver of your car was not fully at fault, the injuries from the accident cause the lawsuit to come in at $10,000,000. If nothing else, you will need legal defense. These suits can take years to settle, and the defense costs add up very quickly.”
“Someone walks up the stairs to your home only to find out that she has the wrong house. However, when leaving, she trips and falls down your stairs, seriously injuring herself in such a way that she could no longer work. Yes, your homeowners policy will defend and pay the lawsuit against you; however, if that limit is exhausted and there is no umbrella, you will be liable for the rest.”
“A neighborhood child runs over to your dog sleeping in your yard, startles it, and causes it to bite and seriously injure the nerves in the young child’s hand. The suit is over $5,000,000 because not only did the parents and the child have to endure trauma, but also the child was a very talented pianist with the potential of becoming a star until the accident. You will have to pay for the estimated loss of income, as well as emotional injury, even though the child startled your dog.”
Personal Umbrellas are a cheap and inexpensive way for people to “cover their tails” for lack of a better term. For about $150-$350 a year depending on how much coverage you desire. It’s a great deal for a lot of piece of mind.