Why You Need a Personal Umbrella Insurance Policy
Posted on Oct 16, 2015
Normal activities put you at risk of having an accident every day. You could end up being at fault for a very serious accident, proving you don’t have to be a millionaire to get sued like one. A personal umbrella insurance policy is made to protect you when your auto or homeowner’s insurance isn’t enough.
Is a Personal Umbrella Policy Necessary?
If you already have auto and homeowner’s insurance, you may assume you’re protected. However, your liability coverage isn’t always enough to pay for the damages in a serious accident. When your liability underlying limits have been reached, that’s when an umbrella policy kicks in.
For example, say you’re at fault in a car accident that causes serious injuries to another driver. Your regular auto insurance covers the other driver’s medical bills up to the amount your policy specifies; perhaps $300,000. This seems like plenty of coverage when you sign up for auto insurance, but you would be surprised how quickly medical bills add up.
Plus, what if the injured driver is a high-paid lawyer or brain surgeon? Months away from work while he recovers from the accident could result in hundreds of thousands of dollars in lost income. If he decides to sue you for these lost wages, you could end up owing $1 million or more.
Where do you come up with the remaining $700,000 you owe? With a personal umbrella policy, you protect your bank account, home and other assets that could be at risk if you’re sued for damages not covered by your regular insurance policies.
What does a Personal Umbrella Policy Cover?
Most of the time, personal umbrella insurance policies are available in million-dollar increments ranging from $1 to $5 million. They cover costs above and beyond what standard auto and homeowner’s insurance policies cover, and they kick in once standard liability limits have been reached.
Examples of real-life personal umbrella policy scenarios include:
- Your child’s friend has a bad accident on your backyard swing set and requires months of rehabilitation.
- Your child starts a fire in the back yard, which spreads and damages a few neighbors’ homes.
- Your dog gets loose and bites someone. You are sued for the damages.
- A broken stair causes your babysitter to fall and break her leg.
- You get involved in a defamation lawsuit by posting a negative review online.
- Your teenager gets in a severe car accident and injuries another person or property.
- You get in a bad boating accident.
In addition to covering liability costs, personal umbrella insurance also covers:
- Attorney costs
- Lost wages caused by time spent in court
- All major incidents and accidents, even if you’re out of the country
Determine if You Need Personal Umbrella Policy
While the law doesn’t require you to obtain a personal umbrella policy, it can provide additional protection if you’re responsible for a serious accident. You’re most likely to benefit from additional coverage if you:
- Have children and/or pets
- Travel extensively
- Participate in activities that could increase the chance of having an accident, including hunting, snowmobiling or extreme sports
- Own equipment that could result in an accident, such as a boat, ATV, motorcycle, trampoline or swimming pool
- Own rental properties
- Have a high net worth
When determining the right amount of coverage for your personal umbrella policy, you need to consider protecting more than just what’s in your bank account. If you’re sued, all your assets – including your home, valuables and earning capacity – could be at risk. An insurance agent can help you determine the right amount of coverage for you.
