People are often confused about personal umbrella policies, particularly about how they work, what they cover and how much they cost. Given the amount of protection this coverage can provide, we feel it’s important to educate our readers. Let us begin by stating what a personal umbrella policy does not do, which is provide coverage that you don’t already have. What a personal umbrella policy does do is provide excess liability coverage that goes beyond the limits that are currently in place within your primary policies. The personal umbrella policy extends the limits of liability on your homeowners, personal automobile and watercraft policies, further protecting you from bodily injury liability claims and / or property damage liability claims. Personal umbrella policies start at a minimum of $1 million in coverage, so the intent is to protect against catastrophic and financially devastating claims. Think you don’t need to worry about a potentially large claim? You might want to think twice.
Rolling Out the Welcome Mat
While primary limits differ by carrier, it is advised that the personal liability limit on a homeowners policy is at least $500,000. Therefore, if you have a $1 million personal umbrella policy, your total liability limit would then increase to $1.5 million. Now let’s assume that someone is injured on your property, which results in litigation against you due to negligence. The lawsuit is filed for $1 million. The primary personal liability limit of $500,000 would respond first, and then the personal umbrella would pick up the excess $500,000. Without a personal umbrella policy, your limits would be exhausted at $500,000 and, if held responsible, you’d have out-of-pocket expenses totaling $500,000. Coming up with that amount of money could be difficult for many people and cause enormous financial hardships. This scenario might seem unlikely, but remember that anyone who visits your home could potentially launch an injury claim – friends, contractors, door-to-door solicitors and even trick-or-treaters. It’s important to keep in mind that injuries can result from a variety of causes (not just a cracked sidewalk or a loose brick on a front porch). Be aware that you could be held responsible for injuries from dog bites, falling trees or guests in your home who become unruly and cause harm to others.
Getting Behind the Wheel
Liability limits on a personal automobile policy typically start at $250,000 per occurrence, with a total limit of $500,000 for the policy period. Many carriers offer lower limits, but the $250,000 / $500,000 limits are strongly suggested as minimums for adequate protection. To illustrate, imagine that you’ve been involved in an at-fault automobile accident which severely injured another party. You’re now responsible for that driver’s medical expenses. If the claim exceeds $250,000, your limit would be exhausted. Without a personal umbrella policy, you (and your bank account) are at the mercy of those growing medical bills. However, a $1 million umbrella policy could be used to cover any excess liability related to this accident. Given the cost of emergency healthcare, a personal umbrella policy offers a significant amount of protection for vehicle owners. Automobile claims occur every day and your exposure is not just limited to you, it’s open to anyone listed as a driver within your household. Therefore, if you have teenage drivers (who are three times more likely to be involved in a fatal crash1), adding a personal umbrella policy makes good financial sense. If your child is deemed liable for an automobile accident, the personal umbrella policy would respond just as if it were you behind the wheel. It serves as a large safety net and can provide some peace of mind when your child hits the road.
Personal umbrella policies are not limited to land – they also extend to watercraft policies, which commonly have a $500,000 liability limit. Personal umbrella policies are particularly important for watercraft owners because safety limits are often pushed with water sports and other tricks to thrill riders. Boating also lacks much of the structure and guidance that drivers receive when using roadways, and there is a prevalence of alcohol consumption (which is the leading known contributing factor among fatal boating accidents2). A personal umbrella policy can provide the needed protection for those who enjoy this fun (but sometimes risky) pastime.
What’s it Going to Cost?
The annual premium for a personal umbrella policy can vary depending on a number of factors, including (but not limited to):
- Credit history
- Driving records
- Number of teenage drivers
- Boat ownership
- Presence of a swimming pool
- Recreational vehicle ownership
When an insurance carrier analyzes your risk and computes an annual premium for a personal umbrella policy, they take many things into consideration. That being said, a typical $1 million umbrella policy can cost between $250 to $500 annually, depending on the aforementioned exposures. A personal umbrella policy can be a smart investment when compared to the money you might be forced to pay if your home or automobile limits are met.
Ready for Rain?
Just like an umbrella extends to protect you from rain, a personal umbrella policy extends your liability coverage to protect you from a downpour of expenses. Experiencing an accident at home or behind the wheel is stressful enough, let alone adding an expensive claim that you cannot afford. Having the increased protection offered by a personal umbrella policy can help make a stormy situation easier to deal with. To find out how you can better protect yourself, contact the Personal Insurance Team at SilverStone Group.
1 “Injury Prevention and Control: Motor Vehicle Safety.” Centers for Disease Control and Prevention website. October 13, 2016. Accessed on January 9, 2017 at https://www.cdc.gov/motorvehiclesafety/teen_drivers/teendrivers_factsheet.html
2 “U.S. Coast Guard Releases 2015 Recreational Boating Statistics Report.” U.S. Coast Guard Newsroom. May 18, 2016. Accessed on January 26, 2017 at http://www.uscgnews.com/go/doc/4007/2821930/US-Coast-Guard-releases-2015-Recreational-Boating-Statistics-Report
This article originally appeared in the 2017 | ISSUE ONE of the SilverLink magazine under the title “When It Rains It Can Pour” To receive a complimentary subscription to the SilverLink magazine, sign up here.