Personal Umbrella Policies: What They Are And Why You Need One

Most personal insurance policies provide liability coverage to protect you if you are sued as a result of an injury you are responsible for, whether it is bodily injury or personal injury. Lawsuits can stem from auto accidents, boating accidents, slip and falls, libel, slander, etc. I have discussed the importance of liability coverage in previous posts, but what happens when the liability on your auto/boat/home insurance policy isn’t enough to satisfy a judgment against you? Well, if you have a Personal Umbrella policy, then you would rely on that policy to pick up the excess. If you do not have a Personal Umbrella policy then you would be paying any overage out of your own pocket.

What is a Personal Umbrella policy you ask? A Personal Umbrella policy is an excess liability policy that sits over all of your personal insurance policies like an “umbrella” to protect you from the proverbial rainy day. This policy is specifically designed to provide additional liability coverage for those instances where the coverage on your primary policies (auto, home, boat, dwelling fire, etc.) is simply not enough to satisfy a judgment against you. For instance, if you were at fault in an auto accident and had Optional Bodily Injury Coverage at a limit of $250,000 per person/$500,000 per accident but were sued by an injured party for $1,000,000 then your auto policy would provide you with $250,000 to cover a portion of the judgment. The remaining $750,000 would still need to be paid to the injured party through other means such as a lien on your home (if you own one), garnishing wages, etc. If you had a Personal Umbrella policy with a limit of $1,000,000 then this policy would kick in after the auto policy was exhausted and pay the remaining $750,000 minus a small deductible which is referred to as “self insured retention.”

There are certain requirements you must adhere to in order to purchase a Personal Umbrella policy. The biggest of these requirements is the minimum liability coverage you are required to carry on all of your underlying policies. Most carriers will require that you carry no less than $250,000 per person/$500,000 per accident on all auto policies. Home policies are typically required to have at last $300,000 in liability coverage. Boats and recreational vehicles are required to be insured and will also have to carry similar limits on the policies to those of the auto and home policies. Another requirement is good driving. Insurance carriers will look at the driving experience and driving record of those being covered on the policy, and can increase their rates or outright deny coverage based on these factors.

These policies can be purchased in increments of $1,000,000 and are quite inexpensive. Prices will vary based on the amount of risks that are being covered. The more homes, autos, boats, and recreational vehicles you own, the higher the premium will be.

You should contact your insurance agent or carrier to obtain more information on Personal Umbrella policies and see if you qualify for one. Anybody can be sued, and being without enough liability coverage can be financially devastating. Have you ever been in a situation when the coverage on your policy was not enough to cover a judgment against you? If so please share your story in the comments section below.