What Is Personal Umbrella Insurance?

Liability lawsuits are unpredictable. Juries are increasingly giving outsized awards to plaintiffs. Just about any accident can become prey to unscrupulous and even manufactured claims of serious injury. While home and auto insurance offer liability protection, they usually aren’t designed to handle big claims, like permanent disability.

If you lose a lawsuit that results in a judgment amount larger than what your insurance policy covers, you will have to pay the remainder out of pocket. Would you have to dip into savings, retirement accounts, your home’s equity or money set aside for college tuition?

A personal umbrella insurance policy can protect you from such over-the-top financial losses.

The low-cost policy that may save the day

Umbrella insurance is a kind of liability insurance. It takes over when the liability limit on your standard home insurance, auto insurance or other personal insurance policy is maxed out.

Umbrella policies will not cover losses to your own property or possessions. Instead, they provide any additional payment needed (up to the umbrella's policy limit) when you are found liable for someone else’s injury or death, or damage to their possessions. Most policies also cover you worldwide, with the exception of some foreign homes and vehicles titled in other countries.

An umbrella policy is an attractive stopgap option. Umbrella premiums are typically much less expensive than those of the standard primary policies they support. This is because the umbrella is a payment backup. It typically doesn’t come into play with average claims, only very large ones.

A personal umbrella policy protects you, as well as any dependents living in your household and those specifically listed on your auto or other personal property policies. In addition, umbrella policies cover some liability claims that may be excluded from your primary policies, like libel, slander, false imprisonment, malicious prosecution, wrongful death, invasion of privacy, and hazards related to nonowned or rented vehicles. Your insurance broker can detail what’s covered and what's excluded on any policies you consider.

The order of payment

Let’s consider a few scenarios based on the assumption that you have:

• A home insurance policy with $1 million in liability protection
• An auto policy with $1 million in liability coverage
• An umbrella policy with a $1 million limit

Say your neighbor gets injured on your property and you're faced with a $250,000 settlement. Your home insurance policy would cover the entire amount, and the umbrella policy wouldn’t come into play.

Now, imagine your teenager causes a multicar accident with a $1.5 million settlement. Your auto policy would cover the first million, and the umbrella policy would pay the remaining $500,000.

As a third scenario, say you cause an auto accident while on vacation overseas. Your umbrella policy would help cover the excess medical or repair costs of others involved in the accident. Your rental insurance wouldn't address these expenses.

Dovetailing policies

An umbrella policy is not a substitute for adequate limits on your primary policies. If you have low coverage limits on your underlying insurance, your umbrella policy premium will increase to account for this.

Most umbrella policies start at $1 million in coverage and increase from there.

The best plan is to purchase the appropriate level of home, auto or other insurance. This will provide the most comprehensive coverage for your situation at an amount suitable for your income and assets. After that, you can rely on an umbrella to safeguard against catastrophes.

Talk to your insurance broker about how an umbrella can support all the policies you carry, such as watercraft insurance, coverage for rental or vacation properties, and home business insurance. You may find important exclusions.

When shopping for insurance, many individuals purchase all policies from the same company. However, this isn’t a requirement. Your broker can help you compare the offerings of multiple insurers since the differences between umbrella policies can be complicated and vary dramatically.

A spreadsheet can prove useful for tracking each umbrella policy’s scope of coverage, which is usually defined in broad terms and accompanied by a list of exclusions. There may also be “endorsements,” or additional coverage options, available.

Talk to your broker about your family’s risks, such as a teenage or elderly driver, a swimming pool, a trampoline, a hot tub, a dog listed as a “restricted” breed, etc. Make sure the policy you choose either specifically mentions each risk as being covered or does not list it as an excluded peril.

Review your primary policy so you understand the full scope of protection available. In some instances, an umbrella policy is the only way to protect against a liability excluded from most standard policies.

With a little added protection from a personal umbrella insurance policy, you can enjoy everyday life with peace of mind.

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Disclaimer: This blog post is for general information only and is not a binding quote or offer of insurance. It does not alter any policy terms, conditions, or exclusions. RRJ Insurance Group Limited o/a KRGinsure makes no guarantees about its accuracy and is not liable for errors or omissions. Contact a licensed broker for full details and advice.