It’s common to assume that a tragic accident won’t happen to you. Unfortunately, hoping something won’t happen isn’t an effective means of protecting against the unexpected. Just one accident can wipe out your savings and assets. It's impossible to predict the amount that could be awarded to the winner of a lawsuit resulting from an auto collision or an accident on your property. Purchasing a personal umbrella policy is one simple way that individuals or families can protect against the devastating financial impact of an unforeseen event.
WHO NEEDS UMBRELLA COVERAGE?
Many people think that umbrella policies are meant to protect only the wealthy. In actuality, you don't have to be wealthy to benefit from personal umbrella insurance. Anyone with even average liability risk should consider purchasing the coverage because it’s more about protecting against a lawsuit than the amount of assets owned. In fact, even those that don’t have any assets will find that their wages can be garnished to satisfy a legal judgment.1 In reality, incidents that would typically fall under an umbrella policy are much more commonplace than many would expect. For instance, if homeowners or auto insurance coverage were exhausted, umbrella coverage would help pay a neighbor’s medical bills, lost wages, or other damages if attacked by your dog. Or, in the event that you caused a 5-car pile-up and the auto insurance or personal liability coverage wasn’t high enough to pay for the other drivers’ medical bills, umbrella coverage would kick in to make up the difference up to the limits of the policy. In addition, if your dependent teenager were to throw a party at your home that included underage drinking, and a guest was arrested for driving under the influence, an umbrella policy could help defend against a subsequent lawsuit.4
WHAT DOES A PERSONAL UMBRELLA COVER?
When the worst happens, umbrella policies serve as an added layer of protection on top of other forms of insurance. Typically, a personal umbrella policy provides excess coverage above what is provided by auto insurance or a homeowners’ policy. For example, assume the driver that causes an auto accident has an auto insurance policy that pays $300,000 worth of medical expenses in the event of an accident as well as a $1 million umbrella. If that driver were sued for $900,000, the auto insurance would pay $300,000 of the damages and the umbrella policy would cover the remaining $600,000. Umbrella policies also generally cover legal expenses on top of the policy amount.1
While individual policy language, terms, and conditions can vary, in addition to providing coverage for accidents that occur on your property or at-fault car accidents, an umbrella policy can also cover watercraft accidents and protect dependent children responsible for an accident or injury. These policies also extend protection against accidents that take place on rental property and can cover personal injury lawsuits arising from libel, slander, character defamation, and malicious prosecution, among others.1
WHAT IS EXCLUDED FROM UMBRELLA COVERAGE?
The image of an umbrella can make it seem like the coverage is a catch-all, but it doesn’t cover everything. Umbrella insurance doesn’t protect against illicit activities like drag racing or other high-risk, vehicle use. It also may not cover all recreational vehicles or those over a certain weight limit (usually 12,000 pounds). In addition, if a policyholder commits a crime, an umbrella policy won’t cover restitution payment. Similarly, intentional acts like discrimination, sexual harassment, intentional property destruction/bodily injury, and other willful or malicious acts are excluded from coverage.1
HOW MUCH DOES UMBRELLA COVERAGE COST?
Personal umbrella policies usually provide $1-$5 million of additional coverage, but it’s possible to obtain higher amounts for those with substantially more assets or elevated risk. Rating is based on exposure including driving history and how many properties, automobiles, boats, or other vehicles an individual or family owns. As the level of exposure rises, so does the price, but for those with average risk, the cost is minimal.
Umbrella prices have seen small increases in 2021, but the line isn’t seeing the kind of rate spikes that have hit most personal lines. In comparison to other types of insurance, umbrella coverage remains very affordable, especially considering the kind of protection it provides. Most $1 million policies cost an average of $150-$350 annually. Buyers can expect to pay about $75 more per year to reach $2 million in coverage, and an additional $50 annually for every $1 million in coverage above $2 million.4
While prices are still reasonable, brokers are seeing some tightening around who is considered a preferred operator, and fewer carriers are offering quotes with reduced underlying requirements when it comes to auto, particularly for youthful or elderly drivers. The likelihood that a $500K/$500K/$100K split limit will be required for auto is also much higher than it was a year ago. In addition, underwriting is scrutinizing higher-profile individuals more closely. Auto and watercraft accidents remain the primary claim drivers for umbrella coverage, and any account with an open liability claim will continue to be very difficult to place.
HOW CAN AGENTS HELP?
Agents can help protect clients by making sure they understand the importance of maintaining required underlying limits to avoid a coverage gap. The amount of underlying insurance needed will vary from carrier to carrier, but typically includes:
- $250,000 in auto insurance bodily injury coverage per individual / $500,000 per accident
- $300,000 in homeowners insurance personal liability coverage
- $100,000 in auto insurance property damage coverage per accident1
It’s vital that coverage submissions be accurate. When requesting an umbrella quote for a higher profile individual or an account with greater exposure, more detailed information about underlying limits, driving history, occupancy for all properties, etc. will be needed, and most umbrellas won’t be quoted unless the submission is complete. When it comes to renewals, agents should start the process 45-60 days out because there are fewer umbrella carriers in the marketplace.
Just because you think you don’t have a high risk of being sued doesn't mean it can’t happen. Even for those that are very careful, the safest course of action is to carry personal umbrella insurance.1 It serves as a valuable layer of added protection in today’s litigious society.
CRC’s seasoned producers have the industry expertise, product knowledge, and wholesale market access to provide individuals and families with a variety of prices, terms, and conditions. Contact your local CRC Group producer to learn how we can help protect your clients in the event of an unforeseen accident or injury.
- Claire Willis is the National Personal Lines Practice Leader located in CRC’s Jackson, MS office.
- Eric Crouse is an Inside Broker with CRC’s Personal Lines Team in Altamonte Springs, Florida where he handles personal lines business for multiple underwriters.
- It's Raining Lawsuits: Do You Need An Umbrella Policy?, Investopedia, June 25, 2019. https://www.investopedia.com/articles/insurance/09/do-you-need-an-umbrella-policy.asp
- Stuart Boat Accident Lawyer, Lesser Lesser Landy & Smith, PLLC, https://www.lesserlawfirm.com/stuart-personal-injury-lawyer/boat-accidents/
- Statistics on Lawsuits in America, Resolution Funding, August 14, 2017. https://www.resolutionfunding.com/blog/popularity-and-statistics/
- How Umbrella Insurance Works, Investopedia, February 7, 2021. https://www.investopedia.com/articles/personal-finance/040115/how-umbrella-insurance-works.asp
- Top Court Filing Statistics from Around the Country, One Legal, April 3, 2019. https://www.onelegal.com/blog/top-court-filing-statistics-from-around-the-country/