Anuj Kasera
By Anuj Kasera
Your auto or home policy will cover you up to the limits mentioned in the policy. But what happens if you are held liable for an amount that exceeds those limits? This is where umbrella insurance steps in. What exactly is umbrella insurance and what does it cover? And more importantly, do you need one? Let’s find out.
What is Umbrella Insurance?
Simply put, umbrella insurance is a form of personal insurance that is designed to provide additional coverage on top of what is offered by your homeowners or auto insurance. So, while your homeowner and auto policies provide coverage for the regular liability risk per your policy limits, umbrella insurance will be the extra cushion to cover you for that catastrophic event where the liability assigned to you exceeds your policy limits. Example, your neighbor falls on your property and becomes paralyzed. The few hundred thousand liability coverage from your home insurance will not be sufficient to cover his lawsuit which will most likely be in millions.
This is where your umbrella insurance will be deployed to protect you – of course, limited by the umbrella policy amount.
What does it cover and what is excluded?
Umbrella insurance provides liability coverage where you are held liable to pay for damage suffered by others. It will never pay for damages to your property. Umbrella usually covers these three areas:
● Personal injury – Example: Your dog bites your neighbor’s kid and leaves him paralyzed.
● Property damage – You are at fault in a major multi-car accident and will be held liable for damage to all cars.
● Slander – You write a negative review for a business online and they sue you.
Let us take a real-life example: Your auto insurance provides liability coverage of $500K and umbrella insurance has a limit of $3 million. Your teenage child causes a multi-car accident resulting in $2 million total liability from property and medical claims.
The first $500K will be paid by the auto insurance while the remaining $1.5 million will be paid by the umbrella insurance. In absence of the umbrella insurance, you will be responsible for the $1.5 million which may be recovered by selling your personal assets. This situation could lead to bankruptcy for some people.
As a general rule, umbrella insurance will not cover damages from intentional actions or liabilities from business activity.
Who needs umbrella insurance?
While everyone is at risk of a large catastrophic event, some people have a higher exposure based on their lifestyle or circumstances: Below are some examples:
● You have significant assets: If you are a high net worth individual, you should certainly consider this policy. One of my clients who owns multiple rental properties inquired whether he needed this policy as his tenants already have tenant insurance. My response was that if something were to happen, the attorney is going to come after you, someone who has assets vs. the tenant who will have limited resources. The main objective here is to protect your assets, regardless of whether you were at fault or not.
● You own pets, especially aggressive dogs, snakes etc.
● High exposure through activities like transporting hazardous materials or commuting long distances, thereby increasing the chances of accidents and losses.
● Inexperienced driver in your household: Chances of accidents rise dramatically with younger or inexperienced drivers. One of our client’s son was involved in an accident with a high-end car. Client’s son jumped the signal and hit another car. Fortunately, for him, the other car was driving at a higher speed. Insurance determined that both were at fault and so my client’s policy had to pay only for his car and not the other car. But if this were not the case, my client would have had to pay out of his pocket to cover the expensive car.
Cost: Umbrella policy may cost between $150 to $400 per year depending on the amount of coverage. Compared to the benefits provided, this policy is inexpensive and should be seriously considered. Note though that umbrella policy usually requires that you must buy high basic limits on your car or home insurance.
The hope is that you do not have to file umbrella insurance claim, or any insurance claim for that matter; but if you do, this will be one of your best financial decisions.
Anuj Kasera is a long term resident of Charlotte, NC and owns an insurance agency, focusing mostly on home, auto and business insurance. He can be reached at anujkasera@gmail.com.
