What is an Umbrella Insurance Policy
Many people are a little unsure of what an Umbrella Insurance Policy is, even if they have one. Umbrella Insurance Policies provide an additional layer of liability protection added on top of underlying policy liability limits.
The next obvious question is what is an “underlying policy”?
They are the policies that the umbrella is added on top of. Policies for your home, car, boat, renters, rental property, etc. all have liability protection built in. The umbrella adds additional liability coverage beyond what is included in each of those policies.
I don’t own a home or car. Can I still get an Umbrella Insurance Policy?
Sure, even if you don’t own insurable assets like homes/cars- if you have any money to your name (cash, investments, retirement accounts), you can and should still protect those assets. Remember- that the amount of insurance you need is dependent on the type of loss you are trying to protect against. If you have $100,000 in liability protection on your renters policy and you accidentally cause a fire that burns down your apartment building- you will need a lot more than $100,000 in coverage. Without an umbrella policy, the result of that occurrence would be a personal debt for the cost of the entire building/complex.
Even if you don’t have a house or car, you can get an umbrella insurance policy by securing renters insurance. You can get renters insurance on any address you call home. A Renters Insurance policy (H04) is a type of home policy that covers your personal property (clothes, furniture, electronics, etc.). The renters policy will qualify as an underlying policy that will allow you to get an Umbrella Policy to go with it. Most of the time, it’s best to get your umbrella from the same company that has your auto or home/renters policy.
How does this actually protect me in real life?
Here are some real world examples of how an umbrella insurance policy could protect you from catastrophic financial loss…
Let’s say you’re watering flowers at the entrance of your driveway and you leave the hose laying in the sidewalk for a few minutes while you go in to get a drink. Someone trips over the hose and twists or even breaks an ankle. Depending on the person, injuries are very unpredictable when it comes to healing and recovery and “minor” slips and falls can (and do) turn into serious claims. The injured party could sue for damages and potentially time out of work or even the loss of their occupation altogether. If it’s a $1 million claim, you call your agent and he tells you your home policy only includes $300,000 in liability coverage, so the other $700,000 is on you. If you had an Umbrella Insurance Policy, it would cover the other $700,000.
Another example would be an auto accident with significant injuries. In one scenario, a customer’s son loaded up his little pickup truck with a few friends to go to a nearby convenience store to get some drinks and snacks. On the way there, he accidently ran off the road and rolled his truck injuring himself and several of his friends. Even though they are friends, they still sustain real injuries and someone has to be financially responsible. By law- that person is the driver.
The auto insurance policy only covered a tiny fraction of the medical costs for the injured parties in this particular case. Even when health insurance pays, there are times when health insurance companies sue the at fault party to recoup some or all of the medical cost. Health insurance also doesn’t pay for lost income or the impact of some permanent disability or physical limitation as the result of such a traumatic injury. Even though it was an accident that could have happened to anyone- and the friendly parents had no intention of suing the parents of the driver, the health insurance company has an inherent right to pursue reimbursement. Their health policy, like many others, outlines the insurance company’s ability to subrogate their losses from the at-fault or negligent party.
The father of the driver was a very successful engineer that had retired in his early 50’s and they owned their home and other assets outright. This lawsuit caused them to lose everything. Had they had an umbrella policy, the additional coverage it would have provided would have protected the financial stability they spent their lives building.
Insurance companies have teams of lawyers whose sole jobs are to recover losses such as this. Likewise, the umbrella insurance company would have its own team to defend you in order to minimize the money paid out by the umbrella policy. I don’t know about you, but I’d rather fight an insurance company with another insurance company at my side, and not by myself.
Is an Umbrella Insurance Policy expensive?
No, a $1 Million Umbrella Insurance Policy can be under $100 for the entire year. Of course the number of underlying policies you have and the limits you want will affect the premium, but they are typically very inexpensive relative to the amount of protection they provide. In our world today, people will sue you for just about anything, so if you have any financial assets worth protecting- an umbrella policy is something you don’t want to be without.