Personal Umbrella or Excess Liability
One objective of insurance is to protect your personal assets from a lawsuit against you due to a personal action. For example you are at fault in an auto accident and someone is injured in the other car; or your deck at home, collapses and several friends are injured. In the first example your personal automobile insurance policy should respond; and in the second example your homeowners insurance policy should respond.
What would happen if your auto or home policy liability limits were not high enough to pay for what the jury decides you owe? What may happen is your personal assets including future earnings could be used to settle the judgment against you.
A very cost effective way to protect your assets is to purchase an additional layer of liability insurance that is in addition to your regular policies. It “rides above” the home, auto, boat, motorcycle … and any other personal policies you may have. This additional policy is called an umbrella or personal excess liability policy. To qualify for the policy, the underlying polices will have a required amount of liability. This underlying limit is similar to a deductible. It is important these underlying limits be maintained or you could have an extremely large exposure. For example if the umbrella requires $500,000 liability on your auto policy and you only have $300,000 you would have a gap in coverage of $200,000!
Another decision you have to make is to determine the limit of your excess policy. The standard or starting amount is $1,000,000; however you need an amount at least equal to your personal assets. Consider your home, retirement accounts and even future earnings as you determine your total assets.
Having an umbrella policy is no guarantee a judgment could not even exceed that limit; however most of the time if an adequate policy limit is in place; a settlement will be made within that limit and not continue to attack your other assets.
Many insurance companies will require they insure your home or your auto or both before offering excess coverage; primarily because of the concern of making sure the underlying limits are correct; however at WTM we do have a few carriers that will write a separate personal excess policy.