Umbrella Policies

Many people are familiar with the term umbrella policy, but they aren’t sure what it is or why they would need it. We believe an umbrella policy is an important insurance policy that should not be overlooked. Below, we’ll explain why. But first, let’s make sure we all understand what umbrella policies do.

An umbrella policy provides personal liability coverage for just about anything you could be found personally liable for in a lawsuit*, from slander to your dog biting your neighbor. Also included is personal injury (such as if your neighbor were to get injured at your home) and property damage (such as if your teenage driver were to miss your driveway and damage your neighbor’s property).

You may be thinking your homeowners and auto insurance have liability coverage as a part of their policies (and that it would cover two of the scenarios mentioned above). This may is true, but umbrella policies kick in after you meet the maximum coverage in such cases.

For example, if the neighbor who fell down your stairs sued you for $1 million and won, but your homeowners liability coverage only had $500,000 of coverage, you would be on the hook for the other $500,000 if you did not have an umbrella policy.

The slander scenario would not be covered by either the homeowners or auto policy, which points us to a couple of huge benefits of the umbrella policy: it covers you not only when something happens outside of the coverage for your house and car, but it also covers members of your household in a similar scenario.

The next natural question is: “Who should have this coverage and how much coverage do they need?” At Guillaume & Freckman, we don’t want to over-insure, but we do want to get our clients protection that makes sense in their lives. For those with assets to protect, umbrella insurance coverage makes sense. It protects their net worth and future income.

As far as how much coverage is needed, it will vary depending on the client, but for most people a policy of $1 million provides the necessary coverage at a very reasonable cost.

Often, you can get the best deal by shopping with the company providing your homeowners and auto policies. An umbrella policy will likely lower your homeowners premium, but it could increase the cost of your auto policies if you have low liability limits. Generally, a couple hundred dollars a year can provide you with coverage that protects your hard-earned net worth and gives you peace of mind.

*Each policy is different and should be specifically reviewed for excluded circumstances.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable.