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Umbrellas: Function, Cost, and Everything In Between

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A personal umbrella policy (sometimes referred to as a personal catastrophe liability policy) provides you with the highest limits of liability possible on all of your primary policies (home, auto, toys). Due to the expansive coverage ceiling, ease of applying, and extremely affordable pricing, I always recommend including these polices in your personal insurance portfolio.

What does an umbrella do?

Umbrellas expand on liability coverage that already exists on underlying policies, and also provide a few primary coverages that your other policies wouldn’t cover (i.e. court costs and expenses incurred to investigate, defend, or settle claims against the insured if not normally covered with an underlying policy). Most personal umbrellas are quoted at a $1,000,000 annual aggregate limit.

Think back to your own personal auto policy. What are your current bodily injury and property damage limits? 25/50/25? 100/300/50? 300 CSL? This information is available on your declarations page of your policy and tells you your coverage limits.

100/300/50 means that you are covered for $100,000 bodily injury per person in an accident, $300,000 bodily injury total per accident, and $50,000 for property damage per accident. 300 CSL (combined-single limit) means that you are covered for $300,000 for BI and PD per accident)

An umbrella takes each of these limits and effectively adds $1,000,000. Now, your 100/300/50 auto coverage is increased to 1.1 Million/ 1.3 Million / 1.05 Million. This is the power of an umbrella policy. Note that the umbrella interacts with your home liability coverage in the same way, dramatically increasing coverage limits.

That’s great, but who is ever going to need THAT much coverage?

Let’s run through some examples:

While on a hiking trip, Mike accidentally shoots his friend, Ross, and his family sues for medical, funeral, and emotional damages. It is unlikely that Mike’s homeowner’s liability will be able to cover the loss.

During a protest, Emily says something about a public figure which she thought to be true but was not. The following slander lawsuits rapidly absorb her available personal liability coverage.

Chris is on the lake with his family when one of his relatives takes control of the vessel and accidentally runs over a jet-skier, permanently disabling him. Chris is sued for the damages and his boat liability is not enough to cover the suit.

After running late to work, Mikala misjudges how much time she has on a red light and crosses oncoming traffic. This causes a multi-car accident where every victim is attempting to recover compensation from Mikala.

To put it simply, everyone needs the amount of coverage an umbrella can buy because everyone is at risk for catastrophic, “doomsday” accidents. As agents, it’s our responsibility to advise you on how to manage these exposures through insurance.

How much is this coverage going to add to my premium?

So then, it must cost an arm and a leg to get coverage of this magnitude, right? Remarkably, not at all. Umbrella policies are proportionally much less expensive than all of the policies they sit on top of. I have seen personal umbrellas range anywhere from $800 to $70 yearly on personal lines policies. The premium is affected by a few main things:

Number of drivers and vehicles,
Number of exposures (underlying policies)
Full Tort or Limited Tort
Loss History
Umbrella limit

A single driver policy with 1-2 vehicles, a renter’s policy, and limited tort selected can likely expect the yearly premium of a 1 million umbrella to be less than $100/year.

Accidents happen. Insurance provides a way to mitigate the impact these accidents have on your life, but it can only offer a true peace of mind if you have what you’ll actually need in the worst-case scenario.

“Expect the best. Prepare for the worst”

Zig Ziglar

Written by: JT Marshall – Personal lines agent

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