02 Mar Why would anyone need Umbrella Insurance?
Do I Really Need an Umbrella Policy?
Clients and friends ask me this question all the time. I know what they are thinking, “is my insurance agent just trying to get me to buy more insurance, do I really need an Umbrella Policy?” It’s a valid question and one worth asking. Like many things in this life the question cannot really be answered unless we look at who is asking the question. Let me ask you a couple of questions.
- Do you own your home?
- Do you own two or more cars?
- Do you have a boat or jet skis?
- Do you have a recreational vehicle?
- Do you own a business?
- Do you own rentals?
- Do you car pool for work, or run your kids or someone else’s kids to school, scouts, sports etc.?
- Do you have a teen driver?
- Are you a gun owner?
- Will you continue to earn a wage over the next 5 to 10 years?
- Is your total net worth over $500,000?
If you can answer two of the above questions with a yes answer, you need an umbrella policy.
What Is An Umbrella Policy?
Umbrella policies cover your liability over the liability limits on your other insurance policies. If you carry $300,000.00 liability limits on your auto insurance and you are in an auto accident and you get sued for $500,000.00 an umbrella policy would pick up the $200,000.00 difference. Why is that important? Do you really want to have to sell your house or have your future earnings garnished until your lawsuit debt is paid off? No, you don’t. No one wants that.
You need to ask a lot of questions when you buy an “Umbrella” policy. Many insurers only sell a follow form Excess Liability policy. An Excess Liability policy is not an Umbrella policy. Excess Liability forms provide you with less coverage than the traditional Umbrella policy. By the way, insurers know you won’t know the difference. They are more than happy to protect themselves from potential losses versus covering your liability exposures.
What Is The Difference Between Follow Form Excess Liability and an Umbrella Policy?
Both policies will give you additional liability limits above your current policies. A Follow Form Excess Liability form is just what it says it is. It will provide you additional liability coverage over the primary insurance coverages you currently have, in short it will follow the current primary insurance form. If you have an auto insurance policy and your liability limits are $500,000 and you buy a $1,000,000 Excess Liability policy. You will have 1,500,000 in liability coverage. The same would hold true for your homeowner’s insurance.
If you do not own a boat and you go to the lake and decide to rent a boat and you get in a boating accident your Excess Liability Coverage will not cover you because you did not have boat policy for it to follow. You did not own a boat, so you would not have bought a boater’s insurance policy.
Spoiler Alert: If you had purchased an Umbrella policy for $1,000,000 and you had the same boat accident your Umbrella policy would act as your primary liability coverage even though you did not have a boat policy at the time. Umbrella policies do not need to follow a form. This will follow through if you rent a motor home for vacation with the family, a skidoo, a motorcycle, on and on.
Umbrella policies will also cover you for libel and slander. In the day of social media this is a common occurrence. Your teenager gets angry at the kid next door and starts a rumor that the neighbor sells drugs and alcohol to the neighborhood kids. After the police officers come you your neighbor’s house to investigate and he finds out your kid put this lie out on social media he may want to sue you for Libel and Slander because he got fired from his job as a school administrator due to this lie. Your Umbrella will pay his lost wages, due to the wrongful termination and pain and suffering because his reputation was tarnished. No follow form Excess Policy will provide this type of coverage.
What to Ask Your Agent When You Buy an Umbrella Policy.
- If I rent a boat on a family vacation will I be covered for Liability if I hurt someone while driving a rental boat?
- What if I threw a party and one of my guests had too much to drink and on his way home he had an auto accident and killed someone because he was driving drunk– would I be covered for the liquor law liability lawsuit?
- If my son got into a fight at school and seriously injured another kid and his parents sued me for his medical bills, counseling, and tutoring would I be covered.
- If at my rental my tenants had friends over and someone tripped and slipped on the ice at my rental would my Umbrella cover me.
A no, on any one of these questions, means the agent is selling you a follow form Excess Liability Policy. If you need an Umbrella policy look for another insurer who can sell you an Umbrella policy. In our office we have two insurers who sell Umbrella policies the rest of our carriers only sell follow form Excess Liability policies. There is a difference between the two policies and they cost about the same. If you are going to spend the money buy an Umbrella Policy and get the extended coverage for the same price.
Have a great day. If you have any questions, give Steve Jeter a call at 800-452-6826, or send him an email at email@example.com
– Rex Lesueur
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