Personal Excess Liability Insurance
“Umbrella”
How it works
Personal umbrella liability insurance supplements the basic liability coverage provided by your other insurance--it's designed to kick in when your other liability coverage is tapped out. Depending on the type of claim against you, your homeowners, renters, auto, or boat insurance coverage would be utilized first. Once the basic liability limit under the applicable policy is reached, your personal umbrella liability policy covers the remaining costs, up to the policy limits. For this reason, umbrella liability insurance usually carries a high deductible. Your insurer will probably require you to have homeowners, renters and auto liability insurance equal to the amount of your personal umbrella deductible.
The following shows how your liability coverages work together:
Say, for example, you have an auto insurance policy with a liability limit of $100,000 per accident. You also have a $1-million personal umbrella liability policy with a $100,000 deductible (equal to the amount of liability protection under your auto insurance policy). You are later responsible for a serious automobile accident, and the court finds you liable for $700,000 in damages. Your auto insurance would pay the first $100,000 of the judgment, which would satisfy the deductible under your personal umbrella policy. Your personal umbrella policy would then cover the portion of the judgment not covered by your auto insurance ($600,000).
Certain types of liability claims (such as libel and slander) are not covered under basic homeowners, auto, or other type of insurance policies. An endorsement can be added to these policies, to provide some protection against these types of personal injury claims.
What it covers
A typical personal umbrella liability policy provides the following protection, up to the coverage limits specified in the policy:
- Protection for claims of personal injuries or property damage caused by you, members of your family/household, or hazards on your property, for which you are found legally liable
- Personal liability coverage for incidents which occur on or off your property
- Additional protection above your basic auto policy for auto-related liabilities
- Protection against non-business-related personal injury claims, such as slander, libel, wrongful eviction, and false arrest
- Legal defense costs for a covered loss, including lawyers' fees and associated court costs
What it doesn't cover
Personal umbrella liability insurance typically provides extremely broad coverage. Furthermore, if something is not expressly excluded from coverage, it is covered. Exclusions vary from one insurer to another, and from one policy to another, but the following are some items typically excluded from coverage:
- Intentional damage caused by you or a member of your family/household
- Damages arising out of business or professional pursuits
- Liability which you accept under the terms of a contract or agreement
- Liability related to the ownership, maintenance, and use of aircraft, nontraditional watercraft (jet skis, air boats, etc.), and most recreational vehicles
- Damage to property owned, used, or maintained by you (the insured)
- Damage covered under a workers compensation policy
- Liability arising as a result of war or insurrection
How much should you buy?
There is no exact science when it comes to determining the appropriate level of personal liability insurance coverage. You might think that you only need enough liability insurance to protect your assets, but this figure is practically irrelevant when deciding how much liability coverage you need. A large judgment against you could easily wipe out your assets and put your future earnings in jeopardy. Instead, consider factors such as how often you have guests in your home, whether you operate a home-based business, how much you drive, whether you have teen drivers in your home, and whether your lifestyle gives the impression that you have "deep pockets."
Coverage limits vary, but a typical policy will provide $1 million to $10 million worth of liability coverage. Of course, as your coverage limit increases, the premium will also increase.
Visit our Umbrella Liability FAQ for answers to some frequently asked questions.
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