I was talking with a prospective client the other day who’s asked us to review her home and car insurance. She’s been with the same carrier for over 10 years and wants a second opinion on whether she’s paying more for her insurance than she should. After asking questions about her home, car, and driving habits, I asked her if her annual income was more than $125,000. That, combined with a few details she shared indicated she should probably consider an umbrella policy. Let’s review what one is, the additional coverage it provides, and who should consider such a policy.
Both home and car insurance policies contain liability insurance for the home or car owner. Personal liability coverage on a home or renter’s policy is designed to protect the policyholder if someone comes onto their property or in the home, is somehow hurt, and sues the policyholder for negligence. Personal liability coverage on a car insurance policy is what pays if the policyholder is involved in an accident where they are at fault.
An umbrella policy is a separate liability policy which provides extra liability coverage in addition to what the auto and home policies provide. Umbrella policies provide coverage in amounts ranging from $1,000,000 to $5,000,000. When coupled with the underlying limits on the home or auto policies, an umbrella provides significantly more protection. For instance,
- Take a home policy with $500,000 in personal liability and add to that a $1,000,000 umbrella, then the total liability coverage becomes $1,500,000
- If the car policy has liability limits of 250/500/100 limits and you add a $1,000,000 umbrella the liability limits become $1,250,000/$1,500,000/$1,100,000
Umbrella policies also provide protection against libel and slander; two claims no home policy protects against. Umbrellas provide a higher firewall between the policy holder and a potential lawsuit for negligence, as no insurance company wants to write a check for over $1,000,000. One way to look at umbrella policies, is that for certain people, it’s like having an attorney on retainer.
I usually recommend an umbrella policy for people who meet one or more of the following criteria;
- Homes with a value of $300,000 or more, have a pool or trampoline, or located in nicer parts of town
- Combined household income of $125,000 or more
- Certain career classifications – doctor, lawyer, engineer, architect, business owner, athlete, entertainer, etc.
- Own rental property
- Have inheritance or financial assets in non-protected accounts
An umbrella policy usually costs between $180 and $350 a year for a couple with one home and two cars with no tickets or accidents. Rates will increase somewhat if there is driving activity (tickets & accidents), a teen driver, multiple homes, motorcycles, RVs, etc. to somewhere in the $500 to $1,000 a year range. That amount is still much less than the cost of one or two hours with an attorney.
An umbrella policy doesn’t keep you from being sued, but it does shift a greater part of the defensive burden from you to the insurance company. Ultimately each client needs to determine if having an umbrella is right for them, but it’s also important for me to inform them aware of the protection it provides and they fit the criteria for having one. What do you think? Share your questions, comments, or experience with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!