If you have an umbrella policy, congratulations, you are one of those smart people who cares about the right coverage for your property. If you don’t, I recommend you get it.
Everyone needs to have an umbrella policy to protect their assets and future income. It’s called an “umbrella policy” because it provides additional liability coverage on top of existing auto, homeowners, renters, motorcycle, boat, and other insurance policies.
So, do you have an umbrella policy or are you thinking about getting one but not sure how that coverage works? The umbrella policy can provide anywhere from $1 million to $5 million of coverage. Additional liability coverage is typically written with an underlying auto policy. Depending on the insurance company, auto policy limits can start as low as $250,000 and go as high as $500,000.
For example, let’s say Chris has auto coverage with a $100,000 limit of liability. She causes a big accident and is sued. Fortunately, she has an umbrella policy with $1 million coverage. The court orders him to pay $500,000 in losses. When the car’s liability limit is exhausted, umbrella coverage kicks in to pay the rest.
When modifying auto policy liability limits, keep in mind that you must not go below the required limit to use additional liability coverage. If you have an auto policy limit of up to $250,000 and you lower the limit to $200,000, one day when you want to use blanket coverage, you’ll end up with a $50,000 gap in your coverage. Obviously, you will be the one to pay for that gap out of pocket to reach that $250,000 limit. Once the limit is reached and the gap is closed, the general policy will take effect.
If you have additional liability coverage with an underlying personal auto policy and you no longer have the auto policy, you can still keep your umbrella policy by purchasing a non-owners auto insurance policy with limits of 500 CSL. You can also purchase a stand-alone excess liability policy that doesn’t require an underlying policy. I recommend contacting your agent to decide which policy will be best for you.
Even an umbrella policy has exclusions, such as liability covered by workers’ compensation, acts intentionally committed by you or family members living in your home, liability arising from business activities, or punitive damages against you. When the loss is excluded under an underlying policy and additional liability coverage, there is no coverage at all and you are personally responsible for paying the damages.