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Umbrella Insurance (Personal Liability Insurance) Basics

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Umbrella Insurance (Personal Liability Insurance) BasicsI still remember the reaction I witnessed from a close relative of mine when I recommended that she obtain umbrella insurance (personal liability insurance):

“Why on earth would someone insure an umbrella?”

Umbrella insurance does not insure your umbrella; rather it provides extra personal liability insurance coverage that could come in handy if you were ever sued.

Why Umbrella Insurance

Your auto insurance and homeowner’s insurance policies likely provide some level of personal liability insurance coverage, but possibly not enough.  An umbrella policy provides liability insurance on top of the basic amounts offered in these other policies.

If someone were to break their neck on your slippery front porch or if you critically injured a highly paid executive in his or her brand new Lexus, you could be liable for much more than the liability coverage you have in your auto or homeowner’s policies.  Just one lawsuit from an accidental death or an injury could potentially put you out millions of dollars.

If you don’t have adequate personal liability insurance, many of your assets could be at risk.  Furthermore, a court could potentially garnish part of your wages for many years.  Umbrella insurance protects you and your family by paying claims that exceed the liability limits of your homeowner’s and auto policies, up to the limits of your umbrella insurance policy.

Umbrella insurance may even cover things that you might not be aware of, such as libel, slander, defamation of character, attorney fees, legal costs, and more.

Cost of Personal Liability Insurance

Fortunately, umbrella insurance is one of the least expensive types of insurance.  You may be able to obtain $1 million of liability coverage for as little as $15 – $35 a month, making it one of the best deals in the insurance industry.

Compare the rates of various insurance companies in order to ensure you are receiving the best deal on your umbrella policy.

Underlying Insurance Policies

Most insurance companies require policyholders to maintain a certain threshold of coverage on their auto, homeowner’s, and possibly other insurance policies (i.e. if you own a boat, etc) in order to obtain an umbrella insurance policy.  It is important that you maintain this minimum coverage, since the personal liability insurance policy won’t kick in until after these limits are met.

For example, you might be required to maintain $250,000 of coverage on your auto policy and $500,000 coverage on your homeowner’s policy before you can apply.

Even if you later lower the coverage on these policies after obtaining umbrella insurance, the liability protection from your umbrella policy will not kick in until after the required threshold.  This means that you could have a gap in coverage, which you would be personally liable for.

Who Should Have Umbrella Insurance

The most obvious candidates for personal liability insurance are people that own a business, have significant assets to protect, or that face the risk of lawsuits.  Remember that we live in a very litigious society; if in doubt, it’s probably better to be safe than sorry.

How Much Personal Liability Coverage

Many people that do have umbrella insurance do not have enough.  A million dollars just isn’t what it used to be, and as people’s assets grow, so too should their umbrella coverage.

If you are sued and you don’t have sufficient personal liability insurance, you become personally liable for the difference.  Policies with$1 million to $5 million of coverage are the most common, but some people purchase even more.

Final Thoughts on Umbrella Insurance

In today’s litigious society, where personal injury lawyers are more than happy to make a buck suing you, personal liability insurance is something that many people should think long and hard about.  Those that already have umbrella insurance should make sure they have enough and that they aren’t paying too much for it.

Additional Personal Liability Insurance Information

For additional information on personal liability insurance (as well as other types of insurance) you might consider reading the below book:

What are your thoughts about umbrella insurance?  Do you have a personal liability insurance policy?  Leave a comment below!  

Image: alphaspirit/bigstock


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