An Umbrella Policy Offers Extra Liability Coverage
Accidents can happen, no matter how careful you are. You might make every effort to help ensure that your house and the surrounding area are safe for visitors, but rain, snow, or ice can still cause slippery stairs and walkways.
You may face an increased risk of having a liability claim filed against you if you have a dog, a swimming pool, a trampoline, employ workers in your home, or own a rental property. Or you could be held responsible for a serious auto accident — a special concern if you have a teenage driver. Serving on a charitable board or having a high public profile might also expose you to additional liability.
High legal judgments
American society is litigious, and some legal judgments seem excessive. Standard homeowners and auto insurance policies generally cover personal liability, but you may not have enough coverage to protect your income and assets in the event of a high-dollar judgment. That’s when an umbrella personal liability policy could be a big help, providing additional coverage up to policy limits.
On top of the liability coverage amount, an umbrella policy may help pay legal expenses and compensation for time off from work to defend yourself in court. It might also cover situations not included in standard homeowners policies, such as libel, slander, invasion of privacy, and defamation of character.
Not just for wealthy households
Umbrella policies have long been a standard protection strategy for wealthier households, but they are also appropriate for middle-income families with substantial home equity, retirement savings, and current and future income that could be used to satisfy a large jury award. Your coverage amount should be enough to protect your net worth, and possibly more, depending on your income and personal situation. Home equity might be protected, at least in part, by state law. Qualified retirement plan assets may have some protection from creditors under federal and/or state law, depending on the plan and jurisdiction, but you would still be liable for any judgments.
Coverage and costs vary by insurer and the specific liabilities you might face. For a person with one home, two cars, and two drivers, the average annual premium for $1 million in umbrella coverage is $383.1 Higher coverage amounts can be even more cost-effective. Before purchasing an umbrella policy, however, you generally must purchase a certain amount of liability coverage on your homeowners and auto policies (typically $300,000 and $250,000, respectively), which serve as a deductible for the umbrella policy.
Your insurance professional can help you determine how much current liability protection you have and how much more you can purchase. It may be helpful to consider your assets, potential exposure, and what you consider to be an acceptable risk.