Umbrella Coverage - What Is It And Why Do I Need It

Umbrella policies provide an additional level of liability protection that picks up where the limits on your home, auto, or other insurance coverage leaves off.  They are considered your last level of security or protection. 

This can be very important for individuals or families for a number of reasons, particularly since you don’t have to be a millionaire to be sued like one.  Imagine if you or a family member accidentally ran a red light and struck and killed a pedestrian.  Maybe there's an accident on your property where someone is injured, or a fire in your condominium spreads to other units.  If any of these things happened to you, there's a good chance your current liability limits wouldn't be adequate to protect your assets or safeguard your future earnings.

Unfortunately we live in a society where people tend to sue.  And if you read the news, you know that jury awards can be huge.  If you or your teenage driver backed out of the driveway and hit the neighbors child - reverse the situation and ask yourself if that happened to you would you consider suing that driver?  If you even remotely thought "yes" than an umbrella might be a good call.

In the example above, let’s assume that your auto liability limits were $300,000.  After the lawsuit you're found negligent and served with a $1 Million judgment.  Without an Umbrella policy you are on the hook personally for anything over the $300,000 that your auto insurance covered.  The rules vary from state to state.  In most situations your primary residence is safe, but broadly speaking they can come after all cash on hand as well as cash in checking accounts, savings accounts, money market funds, cd's, jewelry, and other investments.  Plus you can have garnishments levied on your paychecks which will affect your future earnings until the judgment is paid off.

Luckily, Umbrella's are actually affordable, can coordinate with your existing insurance policies and are not just for the well to do anymore.  Additionally, they usually protect against false claims and intentional acts such as libel, slander and vandalism by minors, and cover false arrest, wrongful entry, and invasion of privacy.

Most insurance professionals advise buying liability coverage equal to one or two times your net worth because a jury could come back with a whopping award that bears no relationship to what you own or could earn in a lifetime.  However, the reality is that unless you are vastly underinsured, most attorneys tend to go for the easy win and often settle for the amount of your policy.  After that verdict is when they’ll likely attempt to target the rest of your available assets.  That's why many insurance defense attorneys recommend that most homeowners have at least $1 million in coverage.

That means buying the maximum coverage your policy allows (typically $250,000 to $500,000), plus an "umbrella" or personal-liability policy that provides coverage up to $1 million or more.  If you have assets worth protecting or maybe even something as simple as teenage drivers at home, then the added protections and peace of mind that an Umbrella brings may be for you.


This data is for general informational purposes only.  Please refer to your policy for specific details about your coverage.

Auto Insurance

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