What is Umbrella Insurance?
I am often asked to explain what a personal umbrella insurance policy is. Put simply, an umbrella insurance policy is an excess policy that covers you where your underlying limits leave off, at whatever umbrella limit you choose. Umbrella insurance policies give you an extra layer of protection over top of your other personal insurance policies.
This policy is oftentimes purchased as your net worth grows. In our litigious society today, it is very important to protect your assets. Many times it is predatory claimants that will come after you once they find out you have something to lose. Most times though, it is there to protect you against catastrophe situations that may arise, such as major accidents or lawsuits.
What Types of Policies Will My Umbrella Policy Cover?
Most of your personal insurance policies will be covered under your personal umbrella policy. An umbrella policy is what is known as a follow-form policy. A follow-form policy means that if your underlying policy covers you on a claim than your umbrella policy will pick up where that policy left off. Some common insurance policy types include:
- Auto Insurance
- Home Insurance
- Motorcycle Insurance
- Boat Insurance
- RV Insurance
- Seasonal Home Insurance
- Rental Property Insurance
- Personal Watercraft Insurance
How Much Does an Umbrella Policy Cost?
Most umbrella policies are quite affordable. In fact, they are probably one of least expensive personal lines policies available. Typically for a household with 2 drivers and 2 vehicles, the premium for an umbrella policy will run around $200 per year or less. The premium is based on several risk factors.
How is an umbrella premium determined?
Some of the most common rating factors for umbrellas are shown below.
- Number household of drivers
- Number of household vehicles
- Age of household drivers
- Driving record of household drivers
- Number of residences owned by insured
- Number of other owned toys such as motorcycles, boats, RV’s, etc
When Should I Purchase an Umbrella Policy?
The short answer is anytime you have a concern of being sued you should buy an umbrella policy. We have some clients that purchase these policies when they are very young and have very little net worth. Others will purchase one as they start to gain some equity in their homes or other assets. Still others will do this when their kids reach driving age and there is a concern that they might be involved in auto accident that might cause them to be sued.
There is no perfect answer for everyone. You have to weigh the costs versus the rewards. With the cost of the premium being so small, there isn’t a lot holding you back from protecting yourself. The chance of having an umbrella claim is significantly less than having a claim on your auto and home policy. However, when you do need to file an umbrella claim, it is typically for a large sum. There are many cases where uninsured people lose everything if they aren’t adequately covered. With the benefits outweighing the costs, most people find that $200 per year is worth the peace of mind.
What Liability Limits Should I Have on My Underlying Policies?
While each company can vary on their minimum underlying limit requirements, the most common minimum limits are shown below by policy type.
- Auto Insurance- $250,000 Bodily Injury Per Person, $500,000 Bodily Injury Each Accident
- Home Insurance- $300,000
- Other cycle or boat insurance policies- Either $300,000 Combined Single Limit or $250,000/$500,000 Split Limits
It is important to understand that if you don’t already carry these minimum limits, you would need to increase them to qualify for an umbrella policy. There will be an increase in premium for the increase in limits as well. Most times the increase in minimal, depending on what your current limits are.
What Else Do I Need To Know About Umbrella Policies?
There are some other important concerns you should be aware of when you have an umbrella policy.
- Notify the carrier if anything changes. This includes new cars, drivers, residences, toys, etc. It also includes any new major violations. Most companies will send you a questionnaire at each renewal period to make sure they have the updated information.
- Most companies will offer umbrella limits up to $5,000,000. Ask for quotes on each $1,000,000 layer until you hit your comfort level based on premium. Find your sweet spot.
- Be prepared for higher rates when household drivers are inexperienced or if you have a driver with a DWI or other major violation.
- Your personal umbrella policy will only cover personal lines underlying items. If you have a business and business policies then you should purchase a commercial umbrella policy over those underlying policies. For info on commercial umbrellas or other commercial policies check out one of our previous blogs on the subject.
- Ownership matters. Make sure all items are owned by the same named insured. Due to insurable interest, you must make sure all of the underlying policies are also in your name and that the umbrella policy matches that name. Typically this means placing everything in your name and your spouse’s name.
We write umbrella policies through multiple companies. We take all factors into consideration when we shop out these policies. In some cases it is best to have all policies with the same company. In others, the rates are much more affordable to spread them out to multiple carriers. As an independent insurance agency, we put your needs first. Please give a knowledgeable agent a call at 704-494-9495 for a quote or with any other questions you may have regarding umbrella policies.