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Let an Umbrella Policy Be Your Safety Net

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There comes a certain point in your life when you can look back with a sense of pride at what you have been able to accomplish. Your hard work has paid off and you now are the proud owner of a nice house, a great vacation home, a luxury car and all the other amenities associated with the good life.

If you have reached this stage of your life, you are now wealthy enough to be vulnerable to lawsuits.  Incidents can occur in your day-to-day activities that could potentially cost you.  For example, the elm tree in front of your home could fall onto a neighbor’s house, and in the process, pull down electrical wires that start a fire, burning the neighbor’s house to the ground. Depending on the neighborhood, replacement costs for the house could be several million.

Or perhaps you have just been named to the board of your favorite non-profit. The organization is being sued for personal injuries that occurred during their annual bazaar. As a board member you are also liable and can be sued.

If you’re like most people, you feel confident that your homeowner’s and car insurance will protect you if you fall victim to a claim arising from normal activities. What you should be aware of is that while these policies do include liability coverage, the amount of coverage usually tops out at $300,000.

To protect assets, people need to increase their coverage with an umbrella policy. Umbrella policies take over after the liability insurance in your homeowner’s and auto policy stops. The umbrella policy will pay claims above the liability limits you currently have, up to the limit you have selected.

Since the major portion of the risk is assumed under the primary auto or homeowner’s policy, personal liability umbrella insurance is inexpensive. You can buy a $1 million or larger umbrella policy for about $200 a year.

Many carriers prefer to sell umbrella policies to clients who have both their auto and homeowner’s insurance coverage with them. Your insurance company may also require that your primary liability limits be a certain amount. Umbrella policies are generally sold with a deductible ranging from $250 to $1,000. Your carrier covers you if your actions cause bodily injury, property damage, or personal injury to someone else.

The broadest coverage under an umbrella policy is probably the personal injury coverage because it includes coverage against false arrest, false imprisonment, malicious prosecution, defamation, and invasion of privacy, wrongful entry, or eviction. Your homeowner’s and car insurance policies cover bodily injury and property damage, but not personal injury. You can also buy umbrella policies that include coverage if you are held liable in the course of serving on the board of a nonprofit organization.

Another important aspect of this type of coverage is it not only pays damages, but also lawyer’s fees and defense costs should you be the defendant in a lawsuit. Even if a lawsuit is obviously a nuisance suit, you still have to pay the costs for mounting a defense. In this age of rising litigation expense, it is reassuring to know that you are well equipped to handle it before the need arises.


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