Umbrella Coverage

Here’s a nightmare for you:  You’re backing out of a parking space at the local strip mall when your phone rings and you look away for just a second.  No, you haven’t backed into anyone or caused injury to a person; that’s the good news.  But… you knocked over a fire hydrant and soon 1500 gallons of water are pouring into the parking lot every single second.  You watch in horror as a small lake forms and water begins to flow under the doors of all the stores.  By the time the water gets shut off, your minor fender bender has caused your financial ruin.  You must replace the hydrant and pay the water bill (and you thought the cost of running your sprinklers in the summer was high).  Then, there’s the huge sinkhole that needs to be fixed and after that, the parking lot must be repaved and repainted.  Finally, there’s the cost of business interruption because all the stores needed to be closed.  So who pays for all this?  You do.  Sure, you’ve got auto insurance and the insurance company will pay, but only up to the liability limits of your policy, often just $300,000.  Your “minor” accident while backing up caused close to $1 million in damage.  And you’re on the hook.  You’re wiped out financially.  The court takes your savings, goes after your home and, for decades, requires you to give up a part of your salary.
So, how do you protect yourself from disasters such as this?  According to Rick Robinson, Vice President at HUB International Insurance Brokerage out of Medfield MA, “Umbrella insurance can be the answer because these policies pick up where your homeowner and auto policies leave off.  They’re designed to provide liability coverage above and beyond the limits that you already have on your auto, home and boat insurance”.  The term “umbrella” refers to the fact that this coverage is a separate policy on top of any other primary insurance coverage you may have – it hovers above your other policies and protects you from the elements.  A typical insurance policy may only go up to $500,000, and while this might be enough to cover some claims, it only takes one serious accident to result in a million or multi-million dollar lawsuit.  Think about it.  Some say there’s a good chance you could be sued at some point in your life, especially when you consider that there will be more than 20 million lawsuits filed in the US this year alone.  Scary, don’t you think?  If you have a home, savings or other assets you want to protect, an umbrella policy is a must-have.   

Generally speaking, the amount of your umbrella coverage should equal or exceed your net worth.  If you have an auto policy with liability limits of $500,000, then with a million dollar umbrella, your limits become in effect, $1,500,000 on an auto liability claim.  It doesn’t take much of an imagination to see a jury awarding someone you or your newly-licensed teenager hurt in an accident millions of dollars.  Similarly, if your homeowner’s policy has a liability limit of $300,000, then your $1 million umbrella effectively covers you for $1,300,000.  Most homeowners understand they could be sued if someone hurts themselves on your property, but your responsibility extends beyond your property line.  If you’re golfing and hit a shot into the parking lot and break a car window (or worse, injure a pedestrian), you could be held liable.  Another example relates to dogs – you hate to think of it, but if you’re dog bites someone while you’re walking around the neighborhood, you’re on the hook -- a recent study by the Insurance Information Institute indicated that one-third of all homeowners insurance claims were the result of dog bites.  In cases like these, if a court awards a judgment against you for an amount that exceeds the limits on your homeowner’s policy, you are responsible for the difference.  This is where an umbrella policy comes in.  Robinson says you can usually get a million dollar umbrella policy for a few hundred dollars per year and additional million dollar increments can be purchased for even less.