What is Umbrella Coverage?

An “Umbrella” policy is a separate liability policy that provides an extra layer of protection over and above an existing insurance policy. The umbrella policy works like a safety net covering over and above the underlying policy limits when they have been exhausted.  Due to the litigious nature of our society, having an umbrella policy in place is very important in protecting your assets and future earnings.

How do they Work?

In order to obtain an umbrella policy, you must have an underlying policy in place such as auto, home or business owners insurance.  The umbrella policy sits “on top” of these underlying policies in the event they do not provide sufficient protection to cover the total costs associated with a liability lawsuit you are responsible for.

Umbrella policies are written in $1,000,000 limits.  A typical personal umbrella policy covering a home and (2) two auto policies may be as little as $10-$15 per month for each $1,000,000 in coverage.

A typical commercial umbrella policy covering (2) 20 unit apartment buildings may be $35 per month for each $1,000,000 in coverage.

For example, what would happen if you were at fault in a car accident where someone had lost a limb and the court ordered restitution in amount of $1,000,000?

If you had $250,000 of liability insurance on your auto policy and no umbrella coverage, you would be short $750,000. 

If you had a $1MM umbrella policy in place, your auto policy will pay for the first $250,000 and your umbrella policy would pay the remaining $750,000.

Who Needs Umbrella Insurance?

While in the past, the average person would have no need for such coverage, the situation is much different now. Even if you have only modest income and assets, you can be sued for future earnings to recover the damages and make restitution where you have been found negligent.

Let’s illustrate real life situations.  Below are some examples that could easily happen to anyone.

  1. You throw a party at your home where alcohol is served and one of your guests over indulges.On their way home they get into an accident and injure themselves or someone else. You could be considered liable even if you didn’t knowingly over serve them.
  2. You’re driving home from work, look down at your phone for just a second, miss a red light and collide with a family of 4 killing the mother.

Putting an umbrella policy in place could protect you and your family from the financial repercussions of the above incidents and many more for as little as a few dollars a month.

This article was written by Stacey A Scott, Farmers Insurance Commercial Elite Agent and Broker of Madison Avenue Insurance Group of Woodinville, WA.