Personal Umbrella (Secondary) Insurance

Personal umbrella insurance provides additional limits of coverage if you’re sued for damages suffered by someone as a result of an accident involving your car, property, or while participating in recreational activities. Your existing auto or homeowners liability insurance pays first (“primary insurance”), while the umbrella policy pays second (“secondary insurance”). Serious (mainly auto) accidents where you or a family member are at fault resulting in serious injury, long-term physical impairment, psychological damage or death could easily surpass the limits of your auto or homeowners insurance policy.

Personal umbrella insurance also protects you from situations not covered by ordinary auto and homeowners liability policies, such as:

  • Backyard accidents (swimming pool, hot tub/spa, swing set, trampoline)
  • A slander or libel suits brought against you
  • Injuries caused while at recreational activities (i.e. skiing, golf, boating or horseback riding)
  • Accidents on your rental property
  • False arrest

Almost every state has financial responsibility laws that will hold drivers accountable for bodily injury and property damage resulting from car accidents and the at fault driver could be sued for the damage. Personal assets or wages from the at fault driver, watercraft operator or homeowner could be seized or garnished from a judgement resulting from a lawsuit. To determine if you need umbrella coverage:

  1. Add up your assets – the value of your home, money in the bank, stocks, bonds, other assets, and available funds from a 401(k) or other retirement plan.
  2. See how much liability coverage you have on your home, auto, and boat policies.
  3. Subtract your total liability coverage from our total assets. Is your insurance high enough to cover your assets?

Benefits of Umbrella Insurance:

  • Can cover your costs for negligence
  • Can offer an additional 1-5 million in liability protection
  • Added liability protection above and beyond the limits on homeowners, auto, and watercraft personal insurance policies
  • Designed to “kick-in” when the liability on other current policies has been exhausted
  • Also can protect your relatives living with you
  • Added liability protection without a large added cost
  • Covers your legal defense
  • Covers one’s non-business activities anywhere in the world
  • You can exclude select members of your household (and their vehicles) from your personal umbrella policy by signing an exclusion form.

You may not qualify for (or be charged a higher premium for) personal umbrella insurance if:

  • You own any other motorized vehicles like motorcycles or mopeds
  • Included drivers in your household have mental or physical impairments
  • You in the farming business
  • You have any employees at your residence
  • You’re caring for any property that is not your own and it exceeds $1,000
  • There are business activities conducted at your home or in any property that you own
  • You have any non-owned business or professional endorsements on your current insurance policies
  • Any of your current insurance policies have reduced liability limits or exclude coverage for specific events
  • Within the last 5 years, you been denied insurance coverage or been canceled or not renewed
  • There any drivers on your current insurance policies under the age of 25
  • You own, lease, or charter an aircraft
  • You use your property, vehicles, watercraft, or aircraft for business
  • You have any vehicles, watercraft, aircraft, or property that is owned, hired, leased or used on a regular basis that is not covered by insurance
  • You’ve had tickets, accidents, losses and claims in the past 5 years

Disadvantages of Umbrella Insurance:

  • Usually does not cover damage to your property
  • Business pursuits normally are not covered (but some activities incidental to your business may be covered by special endorsement to your homeowners policy)
  • The limits of the underlying insurance (your auto and homeowners policies) will be exhausted before the umbrella coverage is needed To be eligible, you usually must have high minimum limits of home and auto (liability) insurance
  • Violations and accidents may disqualify people in your household from being on the policy
  • High risk occupations or hobbies of drivers in your household may make the ineligible to be on the policy
  • Family members included on the umbrella policy have to be insured with the same limits of auto insurance that you are required to maintain
  • You have to disclose all the property you own including homes, autos, watercraft, recreational vehicles (RV’s), rental units, land, and motorcycles
  • Personal umbrella insurance may not be currently available by your current carrier in your state

Conclusion: If you have significant assets and income, in most circumstances personal umbrella insurance should be considered.