Ask any insurance agent who has been in the industry a reasonable amount of time, "What is the most important coverage I can carry?" and they will all automatically tell you umbrella insurance. Few of us carry it. Why is that? I believe it is because most of us do not know what it is and how it helps us. This weeks publication is about defining what umbrella insurance is and why it is crucial to carry. I also would like to explain the difference in an umbrella policy and an excess liability policy.
Umbrella insurance provides a considerable amount of protection (usually $1 million or more) for liability claims, which is used in addition to the liability limits offered on an insurance policy already owned and provides protection for accidents that are not typically covered by a standard plan. Examples are the best way to define an umbrella policy. I will use different instances when I used an umbrella policy as an adjuster to handle claims:
1.) Auto Accident: My client was texting and driving. They ran a stop sign and T-Boned a 16-year-old girl. The girl's vehicle was destroyed, the airbags deployed, but there was shrapnel that caused life-threatening damage to the girl. She underwent several surgeries that left scarring from her navel to her clavicle. My clients auto insurance covered the cost of her vehicle. However, her medical bills ran up to $600,000. My clients auto insurance would only pay for $500,000. The family was also demanding pain and suffering, legal fees, and additional cost for the girl's disfiguration. They wanted a total of $1,000,000. We negotiated a settlement of $750,000. The auto insurance paid $500,000, and the umbrella insurance paid the remaining $250,000.
2.) Dog Bite: My clients' dog climbed out of the backyard while they were at work. The dog attacked a pedestrian and bit them. The dog bite was serious, and the clients home insurance carried $100,000 liability. The victim wanted $500,000. We settled at $250,000; the home insurance paid $100,000, and the umbrella policy paid $150,000.
3.)Jet Ski Rentals: My client went to the lake on vacation and rented two jet skis. While riding on the jet ski, they collided with an anchored boat. There was damage to the boat, and one pedestrian was injured. Total cost was $600,000. This accident was not covered by auto insurance. Home insurance declined the claim because the client rented the jet skis. The umbrella policy paid $600,000.
4.) Slander and Libel: Teenager spread inappropriate and untrue statements about her teacher on social media. The accusations reached the school board who suspended the teacher with no pay pending an investigation. The investigation turned out to show the accusations were false but the teacher's name and reputation were tarnished, and he lost pay for almost 12 months. The teacher sued the parents of the child for libel. Homeowners policies excluded defamation of name and did not pay. The families umbrella insurance covered the teacher's damages.
Umbrella Insurance covered the liability damages that are more than your current insurance, or damages that traditional policies exclude or do not cover. An excess liability policy is similar to an umbrella policy. However, it only covers additional cost above the original insurance policy. It does not protect you from gaps in coverage like an umbrella policy. For instance, an excess liability policy will cover situations 1&2 above but would not cover 3&4. The original policy would have to pay out first. Typically (not always) excess liability policies are found in business insurance while umbrella policies are residential.