The answers are, “An excess liability policy,” and “It depends.” Before we get into who needs one, let’s really outline what an umbrella policy is, what you need to have in order to get one and then who we advise have one.
Home (renters & condo too) and auto policies have liability coverage built into them.
- Texas home policies contain some level of personal liability coverage which is there in the event the homeowner is sued for negligence.
- The auto liability is the part of the policy that pays if you hit someone and are at fault.
The liability limits on both the home and auto policies must be at least;
- Home at least $300,000 (some carriers provide a discount if this is $500,000)
- Auto at least 100/300/100 although 250/500/100 is pretty typical
Umbrella policies are separate liability policies that are “over” the auto and home policies, hence the “umbrella” name. They add to or extend the liability coverage of both the auto and home policies in an amount normally ranging from $1,000,000 to $5,000,000. For example, if we create a couple who have;
- 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
We typically recommend umbrella policies for people who meet one or more of the following criteria;
- Homes with a value of $300,000 or more, pool, trampoline or in “nice” parts of town
- Household income of $150,000 or more
- Certain career classifications – doctor, lawyer, engineer, architect, business owner, etc.
- People with rental property
- People with inheritance or financial assets
The cost for an umbrella typically begins around $200 a year for a couple with one home and two cars with no tickets or accidents. Just in case you didn’t catch that, your driving record does impact the rate you pay on an umbrella policy. Throw in teen drivers and that will also add to the cost, but even $500 to $1,000 for an umbrella policy is much less than the cost of one hour with an attorney if you’re a doctor, business owner, etc.
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