Why You May Need an Umbrella Insurance Policy.
It’s an obvious joke, so I’ll get it out of the way: Umbrella insurance policies do not cover loss or damage to a bumbershoot or mechanical device that people carry to protect them from the rain.
An umbrella insurance policy is an optional add-on to the liability coverage you already buy in your home or auto insurance. It is intended to provide an extra layer of protection when a single, expensive event outstrips the limits of your existing liability coverage. For example, if you are responsible for someone’s injury that requires $225,000 of medical treatment and the liability limit of your homeowner’s policy is $150,000, an umbrella policy pays the additional $75,000.
Umbrella insurance is a must for high-profile people, such as corporate CEOs, entertainers, and professional athletes who may be the target of lawsuits because of their notoriety and perception of wealth. It is also necessary for people not in the public eye. For example, San Francisco Bay area, Hamptons, and Long Island homeowners should have umbrella policies because the eye-popping values of their homes cause them to have a high net worth.
Umbrella Policy Benefits & Costs
Insurance companies sell umbrella policies in a variety of limits — $1 million and $5 million are common. Most insurance companies won’t sell an umbrella policy unless you already buy your primary insurance coverage from that company. The company may require your auto or homeowner’s liability limits be certain minimum amount, such as $200,000. The deductibles on umbrella policies range from $250 to $1,000. The cost for umbrella coverage varies, and ranges from $150 to $300 per year for $1 million in coverage.
Like all insurance policies, umbrella policies exclude many loses and costs. Most exclusions should be covered by other insurance policies, or are not insurable events. For example, there is no known insurance available to cover the cost of assault, battery, or murder. See the Umbrella Liability Policy table below for a list of common loses allowed and excluded in an umbrella policy.
|Umbrella Liability Policy|
|Customary Inclusions||Customary Exclusions|
| • Coverage for a claim exceeding limits of underlying policy |
• Covers the insured, spouse and resident relatives
• Libel & slander
• Civil lawsuit defense costs in some situations
• Recreational vehicles
• Travel trailers
| • Intentional torts or willful malicious acts by the insured |
• Events occurring outside of the time in which the policy was in force
• Small business-related events, unless otherwise included
• Professional services liability (doctors, lawyers, CPAs, etc.)
• Lead paint
• Occupational disease
• Terrorist acts (may be capped)
• Flood & earthquake
• Racing competition
Umbrella liability policy coverage often covers loses while traveling. For example, an umbrella policy may cover a traveler’s lost luggage. Some policies cover legal defense costs for some civil lawsuits, but these are subject to significant limitations.
Buying an Umbrella Policy
There are no industry standards (called “forms”) for umbrella policies. Work with your insurance agent if you have specific or unusual insurance needs. For example, if you own an off-road 4x4 or an art-vehicle you operate in parades, both your regular insurance and your umbrella policy may exclude these two unregistered vehicles. A good rule of thumb is, the larger your property, the more likely you may have activities or personal property that fall outside of usual and customary homeowner’s coverage. Review the insurance contract language to be certain the insurance agent’s spoken promise matches what actually covered.
Umbrella insurance policies are a smart choice for people who own substantial assets, and who may be especially vulnerable to lawsuits and judgments. Talk to your homeowners or vehicle insurance agent about your total exposure, and be sure to share information about unusual personal property you own that may not be covered by other policies.