One of the biggest gaps in coverage that I come across is inadequate liability insurance. Jury verdicts are getting harsher, and punitive judgments often exceed a million dollars.
One simple phrase can ruin you or your business: “We find in favor of the plaintiff.”
What is “umbrella insurance?”
Simply put, an umbrella policy is additional liability protection. It kicks in when your other coverage is used up. So, let’s say your homeowners policy has a liability limit of $300,000. If you are sued, and lose, your liability coverage pays the claim, up to the limits of the policy.
But what if the jury award is more than the policy limit?
That’s where an umbrella policy steps in and adds additional liability coverage.
What does umbrella insurance cover?
An umbrella policy typically covers the same things that your underlying liability policies cover. This means that when you are accused of, or found at fault for, the following things, you’ve got an “umbrella” over your assets for:
- Serious bodily injury to someone.
- Costly damage to someone’s property.
- Libel, slander, or defamation of character.
This includes not only the jury award if you lose a lawsuit, but also the cost of defense (remember, lawyers charge by the hour), and even a settlement out of court.
Things to know about umbrella insurance.
Umbrella insurance is unique in a several ways.
First, it’s relatively inexpensive. Why? Because it only pays when your other liability coverage has paid out in full. So, if your auto insurance has a $300,000 maximum payout, the umbrella policy doesn’t kick in until that’s spent. Think of it as a $300,000 deductible. Umbrella insurance is affordable.
Second, to purchase an umbrella policy for either your business or your personal policies, you are required to have respectable amounts of liability coverage already in place. These amounts can vary from company to company.
Third, an umbrella policy is not meant to replace other coverage. You’ll be required to have both home and auto insurance first, and if you are a business owner, proper liability coverage on your business.
Finally, umbrella coverage comes in BIG numbers. Policies start at 1 million dollars in protection, and many insureds need several million dollars in coverage.
“I’m not worth millions. Do I still need an umbrella policy?”
Yes, quite possibly.
Because in many cases, jury awards and settlements exceed normal policy limits. If they do, you’ll still be responsible for the excess… even if it’s a million dollars or more. Ask yourself:
- “Do I have a business at stake? Would I be required to liquidate and go out of business to pay a claim?”
- “Do I have significant personal assets that could be taken if my insurance comes up short?”
- “Do I have an earnings potential that could be garnished if my insurance isn’t adequate?”
Most people, and especially most business owners, haven’t thought through the big “what-if” scenarios.
Everyone is busy earning a living or growing a business. That means that there’s just not enough time to plan for disaster.
That’s where an experienced local insurance agent comes in. Make a new “to-do” on your list.
Put this at the top of it: Call an agent to discuss worst-case scenarios. You’ll sleep better if you do.
Bruce Sackrison is an insurance property and casualty broker affiliated with Professional Insurance Associates helping clients with insurance needs for personal, commercial and business insurance. Bruce can be reached at 707-931-0186, firstname.lastname@example.org