DO I NEED AN “UMBRELLA” INSURANCE POLICY
Umbrella insurance, also referred to as a catastrophic liability insurance, is insurance that provides you with additional or supplemental coverage beyond the traditional bodily injury coverage provided by your automobile, boat or homeowners insurance.
The majority of people will never require the protection of umbrella insurance. However, there are a number of occasions where said coverage may be essential to protect your assets. These situations include, but are not limited to the following:
- If you seriously injure someone in a car or boating accident due to your negligence (carelessness);
- If someone is seriously injured in your home or on your property as a result of your negligence (e.g. someone slips and falls on ice on the walkway leading to your home and you failed to make reasonable efforts to minimize the risks of that occurrence by physically removing the ice or by treating the ice with salt and sand within a reasonable period of time);
- If you negligently and seriously injure someone in an accident that occurs off your property but is the type of accident for which your homeowners insurance may provide coverage (e.g. you ride your bicycle into a person walking in a crosswalk);
- If your dog seriously injures someone either on or off your property (note: some types of dogs bites/attacks are no longer covered by homeowners or umbrella insurance policies. It is important that you check with your insurance providers to ensure that your dog is covered by your insurance. In some situations, an additional premium may be charged by your homeowners insurance in order to provide coverage for certain types of dogs- e.g. Pit bulls)
In such cases, if your automobile insurance or homeowners insurance policies do not provide sufficient coverage to compensate the injured person for the damages you caused (medical bills, lost wages, pain and suffering, scarring, etc..) that person has the right to attempt to pursue a claim against your home, your rental properties, your vehicles and even your future income! The right to pursue a claim against a person’s future income is sometimes referred to as “garnishment”, which is a court order that allows money or property of an at-fault party to be seized to satisfy a debt or legal judgment.
Many people are under the misapprehension that by filing a Declaration of Homestead, their assets will be 100% protected in the event that they are sued. Although a declaration of homestead does provide a level of protection against the seizure and forced sale of your primary residence, there are exceptions to that protection. See the Commonwealth of Massachusetts Secretary of State website which contains a section on the Massachusetts Declaration of Homestead https://www.sec.state.ma.us/rod/rodhom/Homestead_q_and_a.pdf.
In addition, a declaration of homestead will not protect your other assets (e.g. vehicles or rental properties) nor will it prevent an individual from seeking a court order to garnish your wages.
If you own assets or have the ability to earn an income, it is recommended that you have an umbrella liability policy. How much coverage you should have depends on your level of risk and the extent of the assets you hope to protect. In some cases, $1 million dollars in coverage will be sufficient. However, if you own a rental property or other assets with significant value or if you are a high wage earner, it is likely recommended that you have at least $2 million dollars in umbrella coverage.
Keep in mind that an umbrella policy is not a substitute for liability insurance coverage that you might have on a rental property. If you own a rental property and someone is injured on that property due to your negligence, your personal umbrella policy will likely not provide coverage to you for that incident. Subject to certain limitations, the personal umbrella policy only protects you from having your rental property attached, seized and sold in the event that you seriously injure someone in an accident that occurs away from the rental property. Commercial properties generally require a different type of insurance policy altogether. You should consult with your insurance company or agent to discuss what type of liability insurance policy is appropriate to cover accidents which may occur at the rental property you own.
Although the cost of umbrella insurance can vary depending on the level of risk, it generally only costs between $150.00-$200.00 per year for the initial $1 million in coverage and approximately $100.00 more for the next $1 million in coverage. In other words, the amount of insurance coverage protection you receive through an umbrella policy is very high compared to the cost of the coverage. One of the reasons why umbrella coverage is relatively inexpensive is because they only provide coverage after the underlying automobile or homeowner’s insurance coverage is exhausted. In addition, umbrella policies generally come with a requirement that the person carry a certain amount of underlying automobile and homeowner’s bodily injury coverage. Although this amount varies from insurance company to insurance company, it may be as much as $500,000.00 and this coverage is generally more expensive than a similar amount of coverage you might purchase through an umbrella policy.
Some insurance companies have much lower requirements for the underlying coverage levels (e.g. $250,000.00 and in some cases $100,000.00). As a result, it is recommended that you shop around for the best available umbrella insurance rate. You might also attempt to negotiate with the provider of your umbrella policy for the lowest possible yearly premium (cost) and also for the least amount of underlying bodily injury coverage you are required to carry on your automobile, boat and homeowner’s policies. You should also keep in mind that you do not need to purchase your umbrella policy from the same company that provides your automobile, boat and/or homeowners policies although you may be entitled to or able to negotiate discounted rates if you have the same insurer provide all of your insurance policies. Don’t simply accept the first quote you are given by an insurance company. By shopping around, you might save yourself hundreds of dollars.
If you already have an umbrella insurance policy, be very careful about switching automobile or homeowner’s insurance companies in order to save money on your premiums. Many insurance companies are running extensive advertising campaigns telling you that they can save you money if you switch to them. What they don’t tell you is that the main way they are able to save you money is by cutting back on some of your coverages. If you switch companies and reduce your coverages, you may no longer qualify under the terms of your umbrella coverage for that protection. Similarly, if you do switch automobile or homeowner’s insurance companies, make sure to inform the insurance company that provides you with umbrella coverage of the switch so that they can make the appropriate changes and endorsements to the policy. The name and policy numbers for the underlying automobile and homeowners insurance must be included on the umbrella policy for the policy to be effective. In addition, they can notify you if the coverage you are receiving with your new insurance company meets the underlying requirements.
Finally, please bear in mind that an umbrella insurance policy only provides coverage for those who might assert a personal injury claim against you. It does not provide you with additional coverage if you are the one injured due to the negligence of another. In order to provide yourself with sufficient coverage in the event that you are injured in a motor vehicle accident due to the negligence of another, you should evaluate and possibly increase your level of “UM” coverage (Bodily injury Cause by an Uninsured/Underinsured Auto). This is coverage that you can purchase with your automobile insurance policy which allows your automobile insurer to step into the shoes of the insurer for the at-fault party in the event that they either have no insurance or their insurance coverage is insufficient to compensate you for the damages you sustained in a motor vehicle accident. In such cases, you would have the right to assert a personal injury claim against your own automobile insurer to compensate you for the injuries and damages you sustain in a motor vehicle accident due to the negligence of another driver. See Blog on UM insurance. You might also consider purchasing a short or long term disability insurance policy which would provide you with weekly payments in the event that you are unable to work.
In summary, umbrella insurance is a relatively inexpensive way to obtain a significant amount of insurance protection for your assets and income in the unfortunate event that you seriously injure another person as a result of your negligence.