Umbrella insurance: Are you adequately covered?

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Posted: Friday, April 11, 2014 1:00 am | Updated: 3:32 am, Wed Jun 25, 2014.

(BPT) - If you have auto insurance, you probably think you have all the coverage you need for yourself, your spouse and your teenage drivers. Likewise, your homeowners insurance will take care of repair costs in case the pipes burst or there’s a fire. But what happens if you get sued?

If your 17-year-old son is involved in a car wreck that seriously injures a neighbor, or if a child gets hurt in the backyard swimming pool, you could face a mountain of medical and legal expenses. If those expenses exceed the coverage provided by your insurance policies, you would be responsible for covering the remaining costs.

In these situations, an umbrella policy can be a lifesaver. Umbrella insurance is a supplemental personal liability policy that provides coverage above and beyond the liability coverage provided in your homeowners and auto policies. An umbrella policy shields your existing and future assets including wages, an inheritance or other windfalls. It covers you for accidents on your property or car accidents caused by you or your dependents.

“Many people don’t understand what an umbrella policy can offer,” says Charles Valinotti, a senior vice president with insurer QBE North America. “You don’t have to be wealthy or have a great deal of assets to benefit from umbrella coverage. It can protect you and your family from many different kinds of hazards.”

After your auto or homeowners liability coverage is exhausted, an umbrella policy is applied to cover outstanding expenses, Valinotti says. For example, if you are liable for $400,000 worth of damage and your auto insurance pays a maximum $300,000 in medical expenses per accident, the umbrella policy would pick up the remaining $100,000.

Umbrella insurance is similar to homeowners insurance, Valinotti says. If a guest winds up hospitalized after dining at your home due to your negligence and sues you for $350,000, though your homeowner’s policy only covers the first $300,000 in losses, the umbrella coverage would take care of the remaining $50,000.

Since it is a form of personal insurance, an umbrella policy will not protect you from lawsuits related to your business. It also will not cover accidents caused by high-risk activities like drag racing.

Umbrella policies typically provide from $1 million to $5 million of additional coverage. To purchase an umbrella policy, you must have insurance that provides a specific amount of maximum payout. So you may need to increase your auto or homeowners coverage to qualify for an umbrella plan.

In some locations, a policy providing $1 million in coverage will run about $350. The actual cost will depend on the value of the policy, your location and other factors. Your insurance agent can give you a quote.

“When you consider what it offers, the cost is extremely reasonable,” Valinotti says. “Be sure you speak with your agent to see if an umbrella policy makes sense for your personal situation.”

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