Simply put, a Personal Umbrella Policy is an additional insurance policy that sits atop your regular auto and homeowner policy. It kicks in when your regular policy maxes out. Umbrella policies are sometimes known as excess liability coverage. They are supplemental to your regular insurance policies. Generally speaking, an umbrella policy may be appropriate if you have a large amount of assets and real property and you want to protect it.

Most automobile insurance policies have caps for damages they cover where you are at-fault. These caps are required to be at least $25,000 to $50,000 in most states. While you can adjust the amount of liability you’re covered for, there is typically a limit of about $500,000 on most regular auto and home insurance policies. As a general principal of umbrella policies, Traveler’s Insurance says, “the more your earning power and assets increase, the more you have at risk, and therefore, the more you need to protect.”

Do I need an umbrella policy?

Depending upon your tolerance for risk and financial outlook, you should possibly consider adding a personal umbrella policy. Most auto and home insurance companies offer personal umbrella policies for additional rates. These policies are usually sold in increments of $1,000,000, and up to $5,000,000. It’s important to remember that an umbrella policy won’t kick in until your regular liability insurance has been exhausted. An umbrella policy can protect you from expensive litigation and protect your assets. Remember, your house, car, bank account, retirement account, and even future income are all assets that you may be forced to forfeit if you’re sued.

It’s important to balance the added monthly costs associated with a personal umbrella plan and the peace of mind that comes with protection from potentially catastrophic litigation. Make sure to factor in teenagers, risky behavior, and anticipated future assets, in making your decision of whether to purchase an umbrella policy. Your umbrella policy premiums are probably not tax deductible unless they specifically supplement a business insurance policy.

If you incur liability as the result of an accident, you may be liable for the difference in the accident victim’s injuries and your insurance policy’s liability cap. While the general idea of a personal umbrella policy is to protect you from what’s not covered under your regular auto and home policy, they can be tailored depending on your circumstances. For instance, Geico’s personal umbrella policy also covers dog bites, slip and fall accidents occurring on your property, slander, libel, shock, mental anguish, and other potential liability. Legal fees may also be covered.

In some umbrella policies, you are covered for all non-business related liability, unless specifically excluded in the policy. Keep in mind, however, that exclusions vary widely from one insurance company to another. Pay close attention to these exclusions as they often mean you’re not covered from liability from jet skis, recreational vehicles, and liability assumed under a contract. The coverage of an umbrella policy is typically world-wide. Most insurance companies require a minimum threshold on your regular auto and home policy in order to qualify for an umbrella policy.

Example

When we represent a plaintiff who either a) suffered severe injuries, b) has a large amount of medical bills, or c) the plaintiff was tragically killed in an accident, we always look to see if the at-fault party has an umbrella or excess policy as their underlying coverage is routinely insufficient to fully compensate the plaintiff for their damages.    

Say you’re involved in a car accident in which the other driver is at fault. You suffer serious injuries requiring $500,000 in medical bills and you are unable to work for a year, resulting in $100,000 in lost wages. The at-fault driver’s auto insurance policy only covers liability up to $250,000. In this situation the other driver’s underlying coverage isn’t sufficient to fully compensate you for your damage, in this case, an experienced personal injury attorney would look to determine if the at-fault driver has an umbrella policy that may provide additional insurance monies available to compensate you for your losses. Further, you would also inquire about whether you have any uninsured/underinsured motorist coverage that would provide you additional monies to compensate you for your damages.