The readers of this blog should be well aware of the litigation-intensive nature of our society and the importance of appropriate, adequate insurance to cover personal and commercial risk. We generally update you on insurance-related issues affecting the workers’ compensation industry, but this column relates more to personal risk coverage.
We all have automobile insurance coverage and homeowner’s coverage. Both personal auto and homeowners policies provide coverage for liability claims. The question to be addressed, however, relates to the adequacy of those coverages. Purchasing the mandatory minimum for auto insurance, for example, will result in inadequate coverage with a serious auto accident claim, potentially rendering the policy holder personally liable for an excess judgment. Everybody understands that purchasing higher lines of liability insurance provides you with a higher degree of personal protection in the event you are the target of a lawsuit.
One way to expand both coverage and limits is through a personal liability umbrella. A personal liability umbrella policy works just like the name implies. Once you have adequate underlying limits of auto and homeowner’s coverage, the personal liability umbrella provides excess coverage beyond the liability limits set forth in your homeowner’s and auto policies. A carrier will not issue a personal liability umbrella if your underlying lines are too low. In other words, prior to securing a personal liability umbrella, your underlying liability lines for auto and homeowner’s coverage must be adequate.
Once the underlying amounts of coverage are sufficient, however, an umbrella liability policy can provide substantially greater coverage in potential auto or homeowner’s liability claims. The standard personal liability umbrella starts with coverage of $1 million. This coverage can provide drivers and homeowners with significant peace of mind, especially those with teen drivers and swimming pools.
Personal liability umbrella coverage is not as expensive as you might think. A $1 million personal liability umbrella policy can often be purchased for something on the order of $400 per year. For an additional few dollars, that coverage can rise to $2 million.
There are two reasons why such large lines of insurance can be purchased for such low cost. The first reason is due to the fact that you must have adequate underlying liability coverage prior to being able to procure a personal liability umbrella. The 2nd reason is due to the fact that large exposure claims that exceed your underlying policy limits are fairly rare, and therefore inexpensive to insure.
In some circumstances, a personal liability umbrella can provide coverages that do not exist in the underlying line. A personal liability umbrella will occasionally contain coverage for risk that does not exist in the underlying policy, and which the policyholder does not need to primarily insure prior to procuring umbrella coverage. This is what distinguishes umbrella coverage from pure excess coverage.
For anyone with a home, retirement account, vehicles, or significant assets of any kind, the benefits of a personal liability umbrella are obvious. For a relatively small sum, a personal liability umbrella can help ensure that you are able to preserve your assets should the worst occur.
Thomas P. Vecchio
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