What Is Umbrella Insurance?
Umbrella insurance is a separate insurance policy that provides additional liability coverage above the liability coverage limit of your underlying (basic) insurance policies, such as homeowner’s or apartment renter’s, vacation home, automobile, motorcycle, boat insurance, etc. Umbrella insurance coverage is for people who need additional protection against an insurance claim or lawsuit.
Who Can Buy Umbrella Insurance?
Both individuals and corporations can buy umbrella insurance, but this article will discuss umbrella insurance in the context of an individual interested in purchasing umbrella coverage.
Note: I am a personal injury lawyer, and we do not sell insurance.
How Does an Umbrella Insurance Policy Work?
When you buy an insurance policy for your car or home, you can also buy umbrella insurance.
If a claim or lawsuit is filed against you, your underlying auto or home insurance will handle the claim. If a lawsuit is filed, your underlying auto or home insurance will assign a defense lawyer to represent you.
Your umbrella insurance company will also assign a claims representative to oversee the claim’s progression and, if a lawsuit is filed, will also assign a defense lawyer to represent you. The defense lawyers who work for umbrella insurance companies are usually better lawyers and have smaller caseloads than the first-line defense lawyers.
Your umbrella insurance policy will provide additional coverage and pay any settlement or judgment amount that is more than your underlying auto or home insurance liability limit and only if 100% of your underlying auto or home insurance liability limit has been paid.
An umbrella insurance policy may also provide coverage for claims like libel or slander that may not be covered by your other insurance liability policies.
For information about the different types of automobile and motorcycle insurance coverages, see our motorcycle insurance guide.
What Does Umbrella Insurance Protect?
Umbrella insurance will protect your net worth, which includes your income and personal assets.
Personal assets include what most people understand, such as a house. If you own a corporation, your corporation is not a personal asset but the shares you own in the corporation are a personal asset.
What Does Umbrella Insurance Cover?
Umbrella insurance coverage will protect you against a lawsuit filed against you for an injury or property damage you cause to someone else because of your negligence.
The types of accidents or claims most frequently covered by umbrella insurance are car accidents, slip and fall or trip and fall accidents at your house, and dog bites.
What Is Not Covered By Umbrella Insurance?
- Your injury (unless your umbrella insurance has underinsured coverage)
- Damage to your property
- If you committed a criminal or intentional act
- Liability you assumed due to a contract you signed
What Does Umbrella Insurance Pay For?
Umbrella insurance will pay for the following:
- A claims representative to handle the claim against you, whether successful or not. The claims representative will oversee the claims handling by the underlying carrier and will take over claims handling if the underlying carrier offers to pay the entire policy.
- Legal fees of defense attorneys to defend a personal injury claim against you, whether successful or not.
- A settlement, up to the limit of your umbrella insurance policy, of a successful claim against you for injuries you caused because of negligence.
- A judgment, up to the limit of your umbrella insurance policy, against you after trial for injuries you caused because of negligence.
An overlooked but vitally important benefit is that you will be provided a defense lawyer by your umbrella insurance company at their expense. The cost of that defense could be astronomical.
What Happens if a Claim Is Settled by the Umbrella Insurance Company?
If the claimant or plaintiff accepts a settlement offer, your insurance company will require the claimant or plaintiff to sign a general release, releasing you from any further obligation.
Your insurance company has a contractual obligation to protect you, which is why a release is required before paying a settlement.
What if a Judgment Is Obtained Against Me?
If the plaintiff obtains a verdict against you after a trial, the plaintiff will usually settle with your insurance company for an amount within your insurance policy limit or umbrella insurance policy limit. If a settlement cannot be reached, an appeal may be filed by either side.
If the judgment is settled, your insurance company will require the plaintiff to sign a general release.
If the judgment is not settled, the appeal will go forward. If the judgment is upheld or increased by the appellate court, hopefully, the amount is less than your umbrella insurance policy limit.
If I’m Sued, Can a Personal Injury Lawyer Find My Assets?
Yes, very easily. We pay a fee to use a database that even the FBI uses.
In just a couple of minutes, we can find all your real estate, mortgages, cars, boats, and planes anywhere in the U.S. A report will also give us all of your personal information, business information, known associates, relatives, and neighbors.
We can also find all insurance policies that someone has which can cover our client’s injuries caused by the accident.
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Can You Buy Umbrella Insurance Without Underlying Insurance?
No. You cannot buy umbrella insurance without an underlying (basic) insurance policy. You will be required to have minimum liability limits on the underlying insurance policy. Different umbrella insurance policies require different minimum liability limits.
For instance, you may be required to have $300,000 or $500,000 liability insurance coverage on your automobile policy. The minimum liability limits required on the underlying insurance policy are determined by the company selling the umbrella insurance.
How Much Does Umbrella Insurance Cost?
The premium cost of an umbrella insurance policy is generally $200 to $350 per year for a $1 million umbrella policy. For each additional $1 million purchased, the cost is approximately $100 to $200 per million of coverage.
You can buy an umbrella insurance policy from the same company as your automobile or homeowner’s insurance company, or you can buy it from another insurance company. This means that you can shop around for the best coverage at the lowest premium cost.
What Are the Best Umbrella Insurance Companies?
We always recommend that you buy insurance from an independent insurance broker, never directly from an insurance company or from an insurance company agent. People who buy directly from an insurance company often make mistakes. Insurance company agents are only salespeople and are not required to give you advice.
An independent insurance broker does not work for only one insurance company but is licensed to sell insurance policies from several different insurance companies. An insurance broker represents you, while an insurance agent works for an insurance company.
With umbrella insurance, it’s really important to buy from an independent broker because only an independent broker:
- Will take the time to review your specific needs to determine how much umbrella insurance you need for the protection you want and can afford.
- Can shop for the best coverage at the best premium cost for you.
- Represents you.
- Has a legal responsibility to give you the correct advice.
- Will not cost you any additional money.
How can you find an independent insurance broker? You can try one of these searches on Google or click the first link below to search:
- “independent insurance brokers near me“
- “independent insurance brokers in my city or county (replace my city or county like this, “independent insurance brokers in Nassau”)
- “independent insurance brokers in my state” (replace my state like this, “independent insurance brokers in new york”)
Are Umbrella Insurance Policies a Good Idea?
Umbrella insurance is definitely worth the cost of the premium if, either, you own a house, have assets of $500,000 or more, or have an income of $150,000 or more. Not only will it protect your money, but you can sleep well, without having to worry about a personal injury lawsuit.
Should I Buy Umbrella Insurance?
If you have income or assets to protect, you should buy umbrella insurance.
If you don’t own a home, apartment, or other assets and earn less than $50,000 per year, you don’t need to buy umbrella insurance. If you own a car and want additional liability insurance coverage or don’t want to worry about a personal injury lawsuit against you, consider buying higher limits on your auto insurance.
Some people have more risk than others. The following are some things that create more risk if you own any of these:
- House or apartment
- Dog, or
if you have a higher risk, you may be more interested in buying umbrella insurance, but I recommend looking only at your financial situation when considering whether to buy or not because I have seen many serious accidents when the risk was low.
How Much Umbrella Insurance Do I Need?
You can determine the exact amount of your assets that could be at risk or use a ballpark number.
You could use only the equity you have in your house instead of the gross value of your house, but remember that your house will increase in value, and the amount due on your mortgage will decrease.
Money in employer-sponsored retirement accounts (e.g., 401(k) or 403(b) accounts) and up to $1 million in individual retirement accounts (IRAs) are generally protected from civil liability judgments under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). So, you could exclude those amounts from your computations to decide how much umbrella insurance to buy.
So after you decide how much net worth you have to protect, you should buy at least 75% of that amount, but it would be best to buy 100% or even more in the event you accumulate more money.
Even a $1 million umbrella insurance policy is better than nothing and will cover most accidents. Don’t forget, $1 million is not that much money anymore. We got a $465,000 jury verdict for a motorcyclist for a torn meniscus with arthroscopic surgery in his knee. See some examples of what injuries can be worth.
What’s the Difference Between Umbrella and Excess Insurance?
Umbrella insurance provides additional liability limits but also expands coverage to other policies and some incidents not covered by an underlying policy. Umbrella insurance is the type typically purchased by an individual.
Excess insurance provides additional liability limits to an underlying policy but does not extend coverage beyond the underlying policy. An excess liability insurance policy is typically purchased by a business, but businesses may purchase umbrella insurance.
Does Umbrella Insurance Cover a Private Plane or Aircraft?
Umbrella insurance policies exclude aviation and do not cover private planes, helicopters, or other aircraft.
What can you do if you own a plane or helicopter and want additional insurance coverage for liability?
- Increase your liability coverage on your aircraft insurance policy.
- Purchase a separate, excess liability policy (mentioned above). This is one of the situations when someone would buy an excess liability insurance policy instead of an umbrella insurance policy.
Beware of a Gap Between Underlying Insurance and Umbrella Insurance
There are a few situations that can cause a gap in coverage when the maximum liability limit of your underlying insurance, such as your car insurance, is less than that required by your umbrella insurance.
If you are sued when you inadvertently had a gap in coverage, personal injury lawyers like us will seek a judgment against your umbrella insurance, and that will make you responsible to pay the amount of the gap.
Example 1: You buy a $1M umbrella policy, which renews annually, and you increase your auto liability to the required $300,000 single-limit liability coverage. Six months later, when your auto insurance renews, you decide to lower your auto policy to $100,000/$300,000 to save some money or change to another company and buy a $100,000 /$300,000 auto liability policy. But your umbrella insurance is still in force because you paid an annual premium. If you are negligent in causing a car accident injuring our client, you can be responsible for the first $300,000! It’s guaranteed that a personal injury lawyer will sue you because you have a $1M umbrella policy.
Example 2: You own a house and buy a $1M umbrella policy. When you miss a premium payment on your home insurance policy with $500,000 liability coverage, your mortgage bank replaces your home insurance policy with a fire insurance policy that does not have coverage for liability (the bank only cares if your house burns down). A guest trips on a hose you left across your front entrance and sues you for injuries. But your umbrella insurance is still in force because you paid an annual premium. If you are negligent in causing a trip and fall accident injuring our client, you can be responsible for the first $500,000!
Tips to prevent a gap:
- Buy all your insurance policies through the same insurance broker.
- Have the same expiration date for your umbrella policy and the underlying policies.
- Make sure that your umbrella insurance company is notified by your underlying policies of any change.
Phil Franckel is well-known in New York and has been a personal injury lawyer since 1989. He is a Founding Partner of 1-800-HURT-911, LLP®, the Personal Injury Dream Team™, and a former Member Board of Directors of the New York State Trial Lawyers Association. He has an Avvo Top 10 Rating, Avvo Client’s Choice Award with all 5-star reviews, Avvo Top Contributor Award, Multi-Million Dollar Trial Lawyers Award, and others. See Mr. Franckel’s bio for areas of expertise.
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Philip L. Franckel, Esq. is one of the HURT911® Dream Team™ Founding Partners at 1-800-HURT-911® New York; He has a 10 Avvo rating; Avvo Client’s Choice with all 5-star reviews; Avvo Top Contributor; and a former Member of the Board of Directors of the New York State Trial Lawyers Association.
Robert Plevy, Esq. is one of the HURT911® Dream Team™ Founding Partners at 1-800-HURT-911® New York. Rob began his legal career in 1993 as an Assistant Corporation Counsel defending The City of New York against personal injury lawsuits.
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