Some people mistakenly believe that personal liability insurance is necessary only if you are wealthy or if you are reckless. But accidents can happen anywhere, to anyone. You might hit a bicycle messenger, your son might hit a baseball through a church window, or a delivery person might slip on your icy porch. No matter how careful you are, you may one day be sued because you injure someone or damage someone’s property.
Liability insurance protects your assets in the event that you (or a member of your household) accidentally injure another person or damage someone’s property. Standard homeowners insurance, renters insurance, auto insurance, and even some boat insurance policies provide a degree of protection against certain types of personal liability. Personal umbrella liability insurance supplements the basic liability coverage provided by your other insurance–it’s designed to kick in when your other liability coverage is tapped out.
Personal umbrella liability insurance is designed to protect you against a catastrophic lawsuit or judgment. It provides expanded coverage and increases the amount of your liability protection beyond the basic coverage provided under your homeowners/renters and auto insurance policies.
There is no exact science when it comes to determining the appropriate level of personal liability insurance coverage, but you probably need more liability insurance than you think. For example, standard home insurance policies usually provide $100,000 to $300,000 worth of liability coverage, but in today’s society it’s not unusual to hear of $2-million, $10-million, and even $20-million liability judgments. If someone is injured in your home, or if you cause a serious accident, you could be hit with such a judgment. Without a personal umbrella liability policy, a large judgment against you could cost you all the assets you have now, as well as possible future earnings and inheritances. You might think that you only need enough liability insurance to protect your assets, but this figure is practically irrelevant when deciding how much liability coverage you need. Instead, consider factors such as the following:
Do you entertain often? (Having guests in your home, serving alcohol, etc., can open the door to potential liability claims.)
Do you have a long commute to work? Do you take frequent auto trips?
Do you have teenage children? Do they drive?
Does your lifestyle make you a likely target for a lawsuit (i.e., do you give the appearance of having “deep pockets”)?
Personal umbrella liability policies are typically available in coverage amounts ranging from $1 million to $10 million. The amount of coverage you should have depends on the factors mentioned above, as well as your risk tolerance and your financial ability to weather a liability judgment.
The biggest financial loss most of us could face would be the multi-million dollar lawsuit. It’s not unusual to hear of $2 million, $10 million and even $20 million liability judgments against individuals. If you don’t have enough liability coverage to resolve a claim or a lawsuit, the person bringing the action might go after your home or your other assets to pay for damage. If the day comes when you’re served with legal papers, it’s imperative that you have insurance to cover your legal liability.
Personal Umbrella Insurance is designed to protect you against a catastrophic lawsuit or judgment. Umbrella policies supplement the liability coverage you already have through your home, auto and boat insurance and provide an extra layer of protection.
When you buy a personal liability umbrella, you’re getting more than just higher liability limits. You’re also buying broader coverage in case you’re sued. Your liability coverage pays for lawyer fees and defense costs, which can quickly add up.
The personal injury protection under umbrella policy offers coverage not found in your auto and homeowners policy. Personal injury includes false arrest, false imprisonment, malicious prosecution, defamation, invasion of privacy, wrongful entry, or eviction. Most primary policies cover bodily injury and property damage, but not personal injury.
One of the greatest things about Personal Umbrella is that you get so much coverage for your money. Coverage start at $1 million, but you can go as high as $5 million. The total annual premium for a $1 million umbrella is very affordable. Dollar for dollar, the umbrella policy may be one of your best insurance buys.
Umbrella liability insurance can be purchased as a separate policy. However, insurers require that you have underlying basic liability coverage (homeowners/renters insurance, auto insurance, or both) before you can purchase an umbrella liability policy.
Even if you buy the top-of-the-line personal liability umbrella policy, you can’t protect yourself against every possible claim or lawsuit. There will be exclusions in the umbrella policy, just as there are exclusions in every insurance policy. Typically, the umbrella won’t cover claims arising out of a business endeavor. If you own a business — even a small one — you’ll need to buy a business insurance policy to be covered against liability claims. If the court assesses punitive damages against you, those damages won’t be paid by your umbrella insurance. Also, as a general rule, the umbrella policy won’t cover intentional acts.
Deciding the right amount of liability coverage is not an exact science. A common approach or general rule of thumb is to add up all your assets. Whatever that figure turns out to be is an approximate minimum amount of needed liability protection.
