What is a Liability Umbrella?
Insurance has some of the least exciting names for things. It isn’t like Red Bull or Mountain Dew. We have terms like stacking and unstacking. Boring. We have Marine which means we also have Inland Marine. Weird. We have Tort, not the delicious one, and then there is the “umbrella.”
Insurance can be divided into two basic parts; insuring “stuff” and liability. “Stuff” includes things like houses, cars, motorcycles, and boats. All of these things we own and we know whether we could afford a loss if one occurs. Have an old car? No need to carry collision coverage if you could afford to fix or replace the car without money from the insurance company. But what about liability?
Liability is what you can do to someone else. Unlike property, where you know your own ability to absorb a loss, you never know what you are going to do to someone, you never know to whom you are going to do it, and you never know how they are going to respond to being injured or having their property damaged. So, liability is the protection you can buy to protect yourself for all of these unknowns. But how much liability is enough?
The maximum coverage you can buy under most home and auto policies is $500,000. That sounds like a lot. It isn’t. As I write this letter, we have two liability claims against our insureds for auto accidents. One has a demand of $2.3 million and the other will have a demand of $2 million.Is this unusual? For the first 32 years of my time in the industry, we had two umbrella claims, one which paid $4.5 million. In the past 5 years, we have three.
What can you do to obtain more coverage than the $500,000 afforded by your home or auto? Buy and umbrella. No, not the kind for rain. This policy is called and umbrella because it is an additional policy designed to pay after your home, auto, boat, motor home, or motorcycle policies have paid the $500,000 limit. Why is it called an umbrella? Frankly, I don’t know. It is a silly name for a very important policy. Think of it as excess coverage through a policy that expands or contracts based on all of your liability exposures.
How much should you buy? It is a very easy decision. Buy what you can afford with the understanding that you could buy $1 million of coverage and need $2 million. Have $2 million and hit a school bus and that will not be enough. Raise all of your deductibles on the auto and home policies to save money and spend that savings on an umbrella. You might not like to have to pay a $1000 deductible for a home loss, but a $1 million umbrella for a house, two cars, and two mature drivers costs about $240 a year. Already have an umbrella? Think about increasing it since each additional $1 million of coverage costs about $200 annually.
You should discuss this with your insurance professional. Need an insurance professional? Call us at 610-933-4950.