Personal Insurance

Protect your assets with a personal liability insurance policy.

By Nancy Kamachi, Leavitt Group

A personal liability insurance policy, also known as an umbrella policy, provides liability coverage for claims that exceed the limits of your underlying homeowners, auto, and other personal insurance policies.  Umbrella policies can be purchased with limits in one-million dollar increments with typical total limits from $1 million to $5 million.

An Umbrella Policy:

  • Extends the liability coverage you have on other existing personal insurance policies, including homeowners, automobile, mobile home, recreational vehicles, watercraft, and rental properties.  It provides protection for claims in which you are held liable.
  • Takes effect after the limits on your underlying policies have been exhausted.  For example, if your automobile liability limit is $300,000 and you cause an accident with $500,000 in injuries, your automobile policy would pay $300,000 toward the claim and the umbrella policy would pay the remaining $200,000 to settle the claim.
  • Provides coverage for legal defense of claims that aren’t typically covered by basic liability insurance on your homeowners policy, including such things as slander, false arrest, false imprisonment, defamation of character, mental anguish, and wrongful eviction.
  • Applies to claims where you are held liable for the event and will cover you if the claim occurred either due to negligence or non-negligence on your behalf.  Homeowners and auto policies will only protect you if the claim occurred due to negligence on your part.
  • Provides worldwide coverage.  If you are in an automobile accident in a foreign country, your umbrella policy will provide coverage if you are found liable for the accident.  Typically your basic auto insurance policy does not offer worldwide coverage.
  • Requires that you have a certain level of liability coverage on your underlying policies (this varies by insurance company – some may require that you have a $300,000 liability limit on your home and auto, while others may require more).
  • Includes an endorsement option for uninsured and underinsured coverage which can be purchased and added to your umbrella for an additional premium.  Uninsured and underinsured coverage protects you if you were in an automobile accident where the other driver is at fault and the claims costs exceed the amount of insurance the other driver has, either because the driver is underinsured or uninsured.  This endorsement is not offered by every insurance company, so ask your Leavitt Group insurance consultant for more information to learn about the options available to you.

Who Needs an Umbrella Policy?

You don’t need to be a millionaire to be sued like one.  There are an increasing number of judgments in excess of thousands and even millions of dollars being awarded by juries across the country.  The liability limits on your home, auto, and other insurance policies may not be enough to protect all of your assets from financial ruin if a lawsuit were brought against you.  Anyone with an asset value that exceeds the amount that can be protected by the limits on their standard personal insurance policies should consider purchasing an umbrella for added protection.

It is recommended that you purchase an umbrella policy if you and/or any of your immediate family members volunteer or serve in leadership positions in any nonprofit, religious, or civic organizations, including simple positions, such as coaching little league, or other community sports activities.  If you are sued for something that occurs while you are acting in one of these positions, your umbrella will provide coverage for you.

Another trigger for considering an umbrella policy is if you have a teenage driver.  According to the Insurance Institute for Highway Safety, the risk of motor vehicle accidents is higher among 16- to 19-year-olds than among any other age group.  An umbrella policy will add an extra layer of financial protection to your insurance portfolio should your teenage driver cause an automobile accident.

Umbrella Claims Examples

The following are real-life claims that were covered by an umbrella policy.

  • An insured driver fell asleep at the wheel and hit two people who were changing a tire on the side of the road – both of the people he hit died from their injuries.  The claims costs for this accident were $949,521.
  • An insured driver made a left turn in front of another vehicle, causing an accident with total claims costs of $1.5 million.
  • An insured driver hit another vehicle carrying three passengers; one passenger was a 14-year-old girl who sustained brainstem injuries from the accident.  The claims costs totaled $518,644.
  • A 78-year old woman was knocked down by a dog and suffered a hip fracture.  The claims costs totaled $350,000.  The owner of the dog had an umbrella policy which paid the claim.

In all of these situations, the insured individuals were covered by an umbrella in addition to their underlying home and automobile policies.  The umbrella policy covered the remaining claims costs after the limits on the underlying policies were exhausted.

Determining How Much Coverage You Need

When purchasing an umbrella policy, it is a good idea to have an estimate of the total value of your assets you would need to protect in the event you were sued.  Keep in mind that your underlying policies will provide protection up to the limits you have on those policies.  So the umbrella coverage you purchase provides protection in addition to those policies you already have in place.  For example, if your home insurance liability limit is $300,000 and you purchase a $1 million umbrella policy you would then have $1.3 million in coverage with those policies combined.

Umbrella policies are quite affordable considering the amount of coverage they provide.  Many insurance companies will also give you a discount on your other lines of coverage (home, auto, etc.) when you add an umbrella to your insurance portfolio.

Nancy Kamachi joined Dixie Leavitt Agency in 2011 as a personal insurance consultant. Nancy’s main goal is to give her clients peace of mind by helping them understand their insurance options and making sure they have the right insurance for their needs. 

1 Comment

  1. Great article! I believe umbrella policies are one of the most misunderstood insurance policies. I think everyone should have an umbrella policy. I’ve had one for several years now. It doesn’t take much to rack up a large insurance claim, especially in today’s world. I used to also think that umbrella policies were just for rich people. But not always the case… If you are sued, they can come after all you have including garnishing your future wages. For minimal cost, you can have peace of mind with an umbrella policy.

    – Cordelle