Wondering whether you need an umbrella policy? In this article we'll cover:
1 What is an umbrella policy?
2 Do you need one?
3 If yes, for how much?
1 What is an umbrella policy?
Every insurance policy has liability limits. If those limits aren't enough in a liability claim, you have to pay the difference. Unless you have an umbrella policy.
Without an umbrella policy, when damages or injuries from an at-fault claim exceed your policy liability limits, you will be personally responsible to pay the difference, whether it be with your assets, properties, current income, or future income. An umbrella policy adds extra liability coverage on top of your current policy limits, which will help protect your nest egg and future earnings.
A common example of a need for an umbrella policy is with auto claims. Let's say there's a judgment for $750,000 for an auto accident, but the auto policy Bodily Injury limit is $500,000. Without an umbrella policy, $250,000 would be out of pocket.
For an incident that is not a car accident, you have Personal Liability coverage if you have a Homeowners, Renters, or Landlord policy. For example, if the Personal Liability limit on a home policy is $300,000, and there's a judgment against you for $1,000,000, without an umbrella policy, $700,000 would be out of pocket.
Commercial pursuits, such as rental properties of 5 or more units, are not covered with a personal umbrella policy. Contact us if you want to learn more about a General Liability and/or a Commercial Umbrella policy for your business risks
2 Do you need an umbrella policy?
If you have no significant assets or income, you may not need an umbrella policy. If, however, you have any equity in your home, have any assets, and have the potential to earn future income, you could be at risk without one.
If you choose not to have an umbrella policy, we recommend that you at least select the maximum liability coverages on your auto and home policies. If you do not own a home, a renters policy will cover you for Personal Liability for any covered loss other than an auto accident.
3 How much do you need?
Umbrella polices are written in millions of dollars, with $1 and $2 million being the most common. They also require minimum underlying liability limits for auto, recreational vehicles, motorcycles and boats of $250,000/$500,000/$100,000, and $300,000 Personal Liability for all homeowners, renters and landlord policies.
How much more coverage do you need? Most people want their total liability coverage to at least match their net worth. Consider adding even more if you are a high income earner, or risk averse.
Still need help deciding? Contact us for a consultation, and check out this great article to help you determine how much umbrella insurance you need: Umbrella Calculator