Why Personal Umbrella Insurance Matters

October 6, 2011

BY JOHN R. DIFORTE

You don’t have to be worth millions to be sued for millions. This is why personal umbrella insurance matters. If you are involved in an accident with serious injuries and you are sued, it will invariably be for an amount that far exceeds the limits of your primary insurance. Your insurance carrier will promptly notify you that they will defend and pay the injured party up to your policy limits or they may simply tender their policy limits and in either case, you will be responsible for the excess and the defense.

The term umbrella is ambiguous. Most people believe that it will protect them from all calamities and it does not. To better understand what an umbrella is, it is necessary to understand what it is not. Umbrellas are not a blanket policy over your entire insurance portfolio that provides you with infinite coverage. It is coverage that is specific to your legal liability. It has no relevance to stuff that you own.

The pillars of a properly constructed personal insurance portfolio are comprised of Auto, Home, and Umbrella.

Auto There are autos you own and autos that you borrow or rent, defined as non-owned autos. Auto insurance provides legal liability and protection against uninsured/underinsured motorists. It also includes medical expenses and loss of wages to you as a passenger, a pedestrian or while you are traveling in a public conveyance. A New York State auto policy has a physical damage waiver, which means that you do not have to purchase collision coverage when you rent a vehicle.

Homeowners/Condo/Co-op These policies provide personal liability insurance for bodily injury and property damage covering such things as trips and falls, water damage to a lower level apartment, dog bites and a host of other incidents. There are also miscellaneous coverages for snowmobiles, motorcycles, and boats, which are extensions of your home and auto policies.

Personal Umbrella vs. Excess Liability Personal umbrella increases the limits of liability of your underlying insurance. It also provides coverage for certain exposures not included in your primary insurance. Excess Liability only increases your underlying limits of liability and does not broaden coverage. Therefore, it is preferable to buy an umbrella policy. A good agent or broker is helpful in making this selection.

Examples of losses

Example 1 You are involved in an accident where the damages exceed the underlying limits. In the absence of umbrella coverage, you are personally responsible for any part of the judgment over the policy limit. With an umbrella policy, both the defense and the excess judgment are covered.

Example 2 The 25-year-old hose to your washing machine breaks due to poor maintenance. Both you and the downstairs tenant are away for the weekend and it causes extensive flooding damage to the floors below. You receive a demand from the building owners and/or the tenants for damages which exceed the limits on your homeowners’ policy. In the absence of the umbrella, you are responsible for the damaged property in excess of the primary coverage.

Example 3 You speak or write something that is of a derogatory nature against a fellow tenant, which results in a lawsuit. The tenant sues you for libel and/or slander and receives a judgment. The standard homeowners’ policy does not provide coverage for this type of loss. Under Part B of the umbrella, defense and indemnity for the intentional tort is covered subject to a $250 deductible.

Why Risk It? The above examples indicate the importance of personal umbrella insurance. In conclusion, personal umbrella insurance provides enhanced coverage and higher limits. If you are a person who has created wealth for you and your family or you are someone with a good job, a home, some savings … why risk it? An umbrella policy is inexpensive and will provide you with certainty that will protect you from the hazards of life.

John R. DiForte, MBA, CPCU, is President of The DiForte Agency, since 1974, an independent insurance agent in Staten Island, New York. John frequently lectures and writes on insurance related topics. http://www.diforte-insurance.com/