Umbrella Policies: Don’t Wait for a Rainy Day to Analyze Your Coverage and Liabilities

Umbrella insurance is designed to make sure you never find yourself losing a lawsuit for a sum greater than what your existing homeowner’s, renter’s policies and auto coverage will pay. It may also cover certain liability claims that your other policies may not, such as libel, slander, false imprisonment, malicious prosecution, wrongful entry, invasion of privacy. Umbrellas cover not just the policyholder, but also other members of a family or a business from injury to others or damage to their possessions, and you’re covered worldwide. When you require legal defense for a covered claim, an umbrella policy helps cover defense costs such as attorney’s fees and other expenses.

Basically, the more likely you are to be sued, the more strongly you should consider purchasing umbrella insurance. Personal liability risk factors include owning property, renting it out, employing household staff, owning a home with a pool, hosting large parties, being a well-known public figure and being the parent of a teenager. Limits range from $1 million and higher for clients meeting eligibility criteria.

Some examples of incidents where an umbrella policy could cover you if your homeowner’s or auto insurance wasn’t enough would include:

  1. Your dog escapes the backyard and viciously attacks a neighbor, and you are sued for medical bills, lost wages and pain and suffering.
  2. A covered member gets into a fight and punches another party, breaking their nose and you get sued.
  3. A 10-car accident is deemed to be caused by you and the amount of the claim exceeds your auto insurance property damage coverages and/or your personal liability coverage isn’t high enough to pay all the associated medical bills.
  4. You throw a party and several attendees get sick from food poisoning, and you are sued.

While umbrellas provide broad coverage, they do not cover damage to your own property. They also do not cover damage that you or a covered member caused on purpose, liability you agreed to assume under a contract you signed or liability related to war or armed conflicts. Personal umbrella policies do not cover liability incurred in business or professional activities; you’ll need commercial umbrella insurance for that. These work similarly to personal umbrella coverage in conjunction with your general liability coverage to cover medical expenses, lawsuits and judgments against your business that exceed your other policy coverages.

Historically, umbrella policies have been considered very affordable, and there have been lots of choices available. However, recent changes are turning the market upside down and making it harder to find coverage. Some major carriers have withdrawn from the personal lines market, including personal umbrella insurance. Other carriers have become more restrictive with older drivers, younger drivers and drivers with tickets or accidents, or stipulate underlying auto liability limits of $1 million, something that very few auto carriers currently offer. There are instances where carriers exclude “target” customers such as politicians, actors and athletes.

Even the most careful person with the best intentions can end up on the hook for a huge judgment from a personal liability lawsuit. If you recently received a large rate increase on your personal or commercial umbrella policy, it is important to take action right away to find an acceptable replacement policy so you do not have a lapse in coverage. Your agent can work with you to develop a customized “At Risk” worksheet to determine what level of coverage is appropriate for your needs.

By Ross Conner and Kym Cadman