In today’s litigious society, people are filing more lawsuits and receiving larger judgments. Everyone needs to consider buying umbrella or excess liability insurance to protect their current and future assets against catastrophic loss.
“It is a financially sound idea for everybody to consider it, regardless of personal asset holdings,” says Erin Powers, CIC, assistant vice president at Momentous Insurance Brokerage, Inc. “The worst feeling is finding out at claim time that you could have had more protection if you had spent the extra few hundred dollars on an umbrella policy.”
Smart Business spoke with Powers about how to protect yourself with a personal umbrella policy.
Who needs to buy umbrella insurance?
Anyone with auto, homeowners or any other type of liability policy should consider umbrella insurance. We’re all exposed to claims and lawsuits that could jeopardize our current and future assets. An umbrella policy can protect against catastrophic (multi-million dollar) liability settlements.
Let’s say your dog bites a surgeon’s hand so severely he can no longer perform his job. Not only will the liability coverage pay for his medical costs, but it will also pay for his loss of wages. An umbrella policy will respond if your 16-year-old daughter crashes into a school bus, injuring or killing children, or if you injure someone with a golf ball. Another benefit of most umbrella policies is that there is coverage for legal defense costs outside of the excess liability limit.
Most auto and home carriers write no more than $500,000 or $1 million liability limits. An umbrella policy provides an additional layer of liability protection. Policy limits begin at $1 million and may be increased in increments of $1 million.
Is an umbrella the same as excess liability?
Umbrella and excess both provide additional coverage in excess of primary, but a true umbrella picks up exposures from the first dollar when no underlying insurance exists. Excess liability simply provides additional liability limits; coverage is not broadened. Many policies are called umbrella, but the contract wording says otherwise. Take time to understand what you’re buying.
What policy nuances are important to know?
The umbrella carrier will require you to maintain certain primary limits before triggering coverage. You’ll also want defense coverage to be outside of the limit of insurance, so defense costs won’t erode your limit. In addition, make sure you have worldwide coverage — some policies restrict coverage to the U.S. Family trusts or LLCs that own any tangible assets covered on the primary policies need to be included on the umbrella policy as the trust and/or LLC can be brought into the lawsuit.
Personal injury is also an important component to include. It covers things beyond bodily injuries, such as defamation of character, libel, slander, false arrest, wrongful eviction and violation of the right of privacy. With social media, everybody is putting opinions in writing. It’s an important exposure to cover, although some policies are starting to restrict Internet coverage.
What endorsements can help enhance your umbrella?
Typically, if there’s a claim, the insurance company will provide an attorney. A shadow defense provides an extra limit to bring on your own attorney to consult.
Some umbrellas include, by endorsement, employment practices liability, which protects you if a domestic employee sues for discrimination, sexual harassment or wrongful termination.
Another enhancement to consider is uninsured motorist coverage. A few companies can also include uninsured personal liability. With these coverages, you get the benefit of having your medical expenses paid, if the person who causes injury has inadequate or no liability coverage.
How do you know how much to buy?
Certain people are more at risk. Assess your lifestyle and re-evaluate with life changes. What kinds of things do you have, and what could potentially happen? Do you have parties at your house? Are you in the public eye? Do you have kids who are driving? Do you have a swimming pool?
Determining the proper limit is not an exact science. You can’t measure liability loss like a property loss. You want enough coverage to protect your assets, and maybe a little extra for peace of mind. ●
Insights Business Insurance is brought to you by Momentous Insurance Brokerage, Inc.