Dispelling Umbrella Insurance Myths

It’s easy to tell yourself that you’ll probably never need to purchase extra liability insurance. After all, your chances of being hit with a multimillion-dollar lawsuit may be fairly slim. And besides, wouldn’t the liability coverage on your standard homeowners and auto insurance policies be enough to protect you against a claim or a lawsuit?

Before you make such an assumption — and underestimate the importance of having enough liability protection — consider that between 2001 and 2007, the average jury award for all liability cases increased by almost 62%.¹ If you had liability coverage, how much did it increase during this period?

Unfortunately, there are a number of misconceptions about umbrella liability insurance that could cause you to be underinsured.

“My other policies should provide enough coverage.” Standard auto and homeowners insurance policies typically offer between $300,000 and $500,000 in liability coverage. If you’re ever found liable for an amount greater than these limits, you may need to use your home, financial assets, and even your future earnings to satisfy a legal judgment. An umbrella policy acts as an additional layer of protection above the limits of your primary coverage. To qualify for an umbrella liability insurance policy, you generally must purchase the maximum liability coverage available on your auto and homeowners policies, which serve as the deductible for the umbrella policy.

“I’m not at risk of being sued.” If you have a swimming pool, have teenagers living at home, employ workers in your home, own a dog, or entertain frequently, you may have a higher risk of becoming the target of a personal liability lawsuit. Dog bites alone accounted for more than one-third of all homeowners insurance liability claims in 2009. More than 50% of dog bites occur on the dog owner’s property.²

“It’s too expensive.” Umbrella policies typically charge a few hundred dollars a year for $1 million of coverage. The benefits can be used to pay jury awards, plaintiff medical expenses, and legal fees, up to the policy limits. The appropriate amount of coverage for your situation will depend on personal factors, but it’s generally recommended that you have liability coverage at least equal to your net worth.

Omitting umbrella liability insurance from your risk-management strategy could be a costly mistake. The cost is low relative to the additional coverage it may offer.

1–2) Insurance Information Institute, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.