Standard auto, homeowner’s and boat insurance policies cover liability a person may have for injuries or property damage suffered by someone else. Insurance companies design them to cover accidents for which the insured person may owe tens or even hundreds of thousands of dollars. However, sometimes the person may be responsible for an accident so catastrophic that the damages are $1,000,000 or more. To cover financially devastating events like these, insurance companies offer personal umbrella policies. These policies provide additional protection when an accident uses up the amounts of insurance provided by the other policies. They may also cover some types of losses these other policies do not cover.
There is not a “standard” umbrella policy; each company’s offering will be different. Therefore, it helps to have a checklist of considerations when evaluating a policy.
First, identify those things that could expose you to a catastrophic loss. How many cars do you own? Do you have inexperienced drivers in your household? Household attractions like swimming pools, trampolines, and swing-sets present an exposure to severe losses. Boats, like cars, can cause serious injuries and damage if the operators are inattentive, intoxicated, or inexperienced.
Next, identify other exposures you may have that do not involve potential physical injury or illness or property damage or that might require different coverage. Do you or any members of your family participate in social media Web sites or online discussion forums? Does anyone coach a youth sports team, belong to the governing board of a non-profit organization, write computer code as a hobby, or give music lessons? These activities present different exposures to legal liability.
Review your insurance policies. How much will your auto insurance pay for injuries to one other person? How much will it pay collectively for injuries to more than one? How much will it pay for property damage? How much will your homeowners policy pay for your personal liability for an accident? Does it cover any business activities? Does it cover family members accused of slander, libel, or defamation of character in online postings? Does it cover you for allegedly causing mental anguish to a kid who didn’t get much playing time on a team you coached, or trouble caused by a computer program you wrote? How much will your boat-owners policy pay for your liability for boating accidents? The answers to these questions will tell you where an umbrella policy can help.
For example, if your auto policy will pay up to $250,000 for injuries to one person and $500,000 for injuries to multiple people, an umbrella with a $1,000,000 limit will give you insurance equaling $1,500,000 for injuries to two or more people. If your homeowners policy will pay up to $300,000 for your liability, the same umbrella will afford $1,300,000 if someone gets seriously hurt at your home. The umbrella limit of insurance also applies on top of the limit on the boat policy.
In addition, the umbrella may cover things like volunteer activities, statements made online, and certain business activities that a homeowner’s or auto policy might not cover. Normally, the insurance company will require you to pay a deductible amount (such as $250 or $500) before it will pay for a loss that one of these other policies does not cover.
A professional insurance agent can help you sort out what your current insurance does and does not cover and what additional coverages an umbrella will provide. It is important to compare all the coverages the policies provide and not just their prices. Fortunately, catastrophic accidents are extremely rare, but having an umbrella policy when they happen can make it easier to get through them.