Michael Chambers Heer
Do I Need an Umbrella Insurance Policy?
If you are reading this, chances are you need an Umbrella Insurance Policy. An Umbrella is a supplementary liability insurance policy. It covers you for bodily injury and property damage liability. Sometimes it can cover personal injury liability (libel, slander, defamation, false arrest, wrongful eviction). You also may be able to extend your Uninsured Motorist limits using an Umbrella policy. An Umbrella extends coverage over your underlying policies such as Homeowners, Auto, Motorcycle, Boat, Landlord, Condo, or Renters insurance.
How Does It Work?
Let's say you purchase a $1,000,000 Umbrella to extend over your Home and Auto policies. Your Homeowners liability limit is $500,000. A tree falls from your yard onto your neighbor's house causing property damage and injuries. The settlement and your defense costs amount to $1,200,000. Your Homeowners policy would pay $500,000. The Umbrella would cover the rest, $700,000.
Let's say you carry Auto Bodily Injury Liability limits of $250,000 person / $500,000 accident and Property Damage Liability limits of $250,000. You are at fault in an accident. The Bodily Injury claim against you is $750,000. There was also property damage of $400,000. After the Auto policy pays out $250,000 for Bodily Injury and $250,000 for Property Damage, the Umbrella would cover the remaining $650,000 ($500,000 for Bodily Injury and $150,000 for Property Damage).
How Much Coverage Do I Need?
We advise clients have enough liability protection to cover the value of their assets. You don't want to liquidate personal assets to pay a legal judgment. The smallest Umbrella is a $1,000,000 policy. This is sufficient for most people. But if your home is worth $1,000,000 and you have other assets including investments / retirement accounts totaling $1,000,000, then you should have a $2,000,000 Umbrella. If you own investment properties or a business, you may need more coverage. If you own a pool or a boat or have a lifestyle with greater liability risk, you may choose to buy a $2M, $3M, or even $5M Umbrella. Remember, you don't have to be a millionaire to get sued like one.
How Much Does an Umbrella Policy Cost?
The price can vary based on how many cars you own, how many drivers are on your auto policy, and how many properties you own. A $1M Umbrella policy can cost as little as $200 / year. If you own multiple properties, several cars, have teenage drivers, and you want a $3M Umbrella, you could pay as much as $1,000 / year.