Umbrella insurance is for that one in a million catastrophe. Those are long odds, but it won’t feel that way if YOU are the ONE!
What Umbrella Insurance Does
Umbrella policies are called that because they float over your other limits of liability, and provide some additional coverage not found on your underlying policies. You can claim on umbrella insurance after your underlying liability limits are exhausted.
Examples of underlying liability policies:
- Homeowners Liability
- Personal Auto Liability
- Rental Dwelling Liability
- Motorcycle / ATV / RV Liability
- Watercraft Liability
Since underlying limits are generally hundreds of thousands of dollars, umbrellas are reserved for true tragedies.
Umbrella Vs. Excess Liability
True umbrella insurance covers additional liability exposures that the underlying liability on your home and auto insurance may not cover. Some examples are :
- Personal Injury – which is slander or libel and can be a major concern with social media and online review sites
- Foreign Liability – if you are in a car accident in Europe, your auto policy may not help, but your umbrella insurance will usually kick in
- Hobbies that your homeowners policy may consider a business
Not every policy marketed as umbrella insurance actually has more coverage than the underlying insurance. These policies are best described as Follow Form or Excess Liability policies. They provide the additional $1,000,000 of liability coverage for catastrophic claims, but they do not broaden your liability coverage.
Why would I buy umbrella insurance?
“One in a million odds of getting caught up in a bad claim like this, why would I even need umbrella insurance?” This line of thinking makes sense. You only really NEED umbrella insurance if you are the one in a million, right? True that is the only time you will have a claim, but what an umbrella insurance really provides is peace of mind. A truly bad claim is a rare thing, otherwise umbrella insurance would cost more than it does.
Consider the following scenarios, all of which are true stories:
- The star quarterback with a bright future is at your son’s pool party in your backyard. He dives into your pool, breaks his neck and becomes a quadriplegic.
- Your daughter is home from college on spring break. While driving your SUV to her friends house one night, she gets distracted and accidentally hits a bicyclist, who does not survive. The bicyclist was a well known chiropractor in his early fifties with a wife and two teenage children about to enter college.
- Your 5 year old son has a play date with another young boy. Your dog, who you’ve had for years, and has never hurt a fly, bites the play date in the face requiring extensive reconstructive surgery, and permanent scarring.
These real world examples illustrate how an umbrella claim can happen in an instant, and without any prior warning.
The biggest risk
I frequently tell my clients that the most likely way any of them will ever maim or kill anyone is behind the wheel of a car. Sometimes I marvel at the amount of danger we place ourselves in while driving every day. This thought strikes especially hard when I am driving down a two lane highway at 55 mph. Crushing, fiery death is only about 36 inches away on my left hand side. If either I or the oncoming drivers fail to stay in our lanes, the game is over, probably in a ball of twisted metal balled up under a tractor trailer!
I think this, but I don’t let it get me down. I can get out of bed in the morning, and into my car because I’m an optimist at heart!
Are your limits enough?
Home insurance limits are cheap. $500,000 or even $1,000,000 (if available) of primary personal liability for a homeowners policy won’t add more to your homeowners than maybe $25 or $40. (don’t quote me on that)
As I mentioned above, the best chance you have to maim or kill is while you are riding around in your 5,000 lb death machine, thinking nothing of it. Because of this, auto liability limits cost considerably more than homeowners liability. Auto liability limits can be very low, that’s why Underinsured Motorists Coverage is VITAL. The most common limit we see is $100,000 per person / $300,000 per accident. Do you think $100,000 would cover the damage done to the chiropractor’s family in the example above? Uh…no!
When your limits are inadequate, a $1,000,000 umbrella policy will kick in to protect you.
If your limits run out, so does your insurance company provided defense attorney!
Go back to the bicyclist fatality. If the auto insurance is only required to pay $100,000 per person, and they see a catastrophic claim like that, which could incur high defense costs, they will pay their $100,000 to save on attorney’s fees. Without umbrella insurance to continue defending you, finding an attorney to fight for your interests will fall entirely on your shoulders, and bank account!
All of this makes sense for individuals, but should a business buy and umbrella policy?
Businesses need umbrella insurance for the following reasons:
- You work with the general public, and you either go to clients locations frequently or they come to your location frequently. Your interact with a larger number and wider variety of people than an average household – your risk is greater to have a catastrophic claim.
- Anyone who isn’t a business owner thinks all business owners are multi-millionaires, so you have a bigger target on your back.
- You own at least one vehicle, and you let employees drive them.
- Depending on your operations, what you do may actually be more likely to maim or kill someone that driving.
Umbrella Insurance provides peace of mind for when catastrophe strikes. Like most insurance, you will probably never file a major claim on your umbrella insurance, but if you do, the benefit of having at least an additional $1,000,000 of liability protection will far outweigh any premiums you ever paid to maintain that coverage.