I was gathering information a few days ago from a prospective client on a new home she and her husband are buying. Once we’d reviewed everything for me to quote their home and car insurance, I asked her a question that allows me to advise them on their property and liability coverage. The question was, “Without providing me a specific number, is your family’s combined annual household income north or south of $150,000?”
She paused for a moment and answered my question. Based on her answer I shared they were transitioning from needing home or car insurance that protects their stuff to having coverage that protects them financially if something happens that threatens it. That is accomplished with an umbrella insurance policy.
An umbrella insurance policy is a separate liability policy that provides additional coverage “over” the auto and home policies. Umbrella policies add to or extend the liability coverage of both the auto and home policies in an amount usually ranging from $1,000,000 to $5,000,000. They also provide protection against libel and slander; two claims your home policy doesn’t protect against.
For example, let’s say we have a couple who has;
- A home policy with $500,000 in personal liability, a $1,000,000 umbrella raises the total liability coverage on the home to $1,500,000
- An auto policy with 250/500/100 limits, then a $1,000,000 umbrella raises these liability limits to $1,250,000/$1,500,000/$1,100,000
Having an umbrella policy provides a bigger firewall between the policy holder and someone who’s suing them for negligence upon been injured on the homeowner’s property or involved in a car accident with them. The people I recommend this excess liability coverage to include 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 are located in “nice” parts of town
- Combined household income of $150,000 or more
- Certain career classifications – doctor, lawyer, engineer, architect, business owner, athlete, entertainer, etc.
- People with rental property
- People with 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. Throw in driving activity (tickets & accidents), a teen driver, multiple homes, motorcycles, RVs, etc. and the cost will climb to $500 to $1,000 a year. That amount, however, is still much less than the cost of one or two hours with an attorney.
Having an umbrella policy won’t keep you from being sued, but it does shift a greater part of the defensive burden from you to the insurance company. It’s also why I asked the question to begin with. For me to be an insurance advisor to my clients, I need to understand whether we’re protecting your stuff or your financial assets.
