Surprising and incredibly costly liability claims can make umbrella coverage a wise move
Accidents happen, and the costs can quickly add up when they do. Being held liable for medical bills, property damage, and legal fees—they can all have massive financial implications. That’s why obtaining umbrella insurance policies is often a wise choice. Umbrella coverage kicks in after the liability protections of standard personal home, auto, and even watercraft policies have been exhausted.
Let’s look closer at this form of insurance, plus some liability claims that make umbrella coverage something worth considering.
Defining umbrella coverage
Umbrella insurance is a policy that offers more personal liability coverage against financial losses after a covered event. It’s an additional layer covering legal claims that may stem from physical harm or property damage to others, not the policyholder.
For example, most homeowners policies include liability coverage that pays out for claims against the policyholder and members of their household. But while the minimum liability coverage in a home policy is typically $100,000, and these amounts may jump to $300,000 or more in some policies, the maximum amount may not be enough to cover certain claims.
There are similar limits in the liability portion of auto insurance. Policies with “split-limit” liability provisions have a series of numbers separated by a slash, such as “50/100/25.” Those numbers would indicate $50,000 of coverage per person after a covered claim, $100,000 coverage for all people involved in a claim, and $25,000 for property damage. In contrast, policies with “single-limit” provisions simply offer a maximum amount to cover all claims from a single accident, such as $200,000.
Insurance experts recommend carrying far more than the minimum auto liability required by state governments: “bodily-injury coverage of at least $100,000 per person, and $300,000 per accident, and property-damage coverage of $50,000, or a minimum of $300,000 on a single-limit policy.” Nevertheless, some accidents and other events could result in claims far above even those figures.
That’s where umbrella insurance comes in handy and kicks in to offer extra protection for your family and financial future. A typical umbrella policy adds $1 million in excess coverage for around $150-$350 a year. After that, each additional $1 million costs about an additional $75-$150 annually.
Note, however, that most providers require you to have a minimum of liability coverage on the standard policies—such as $300,000 for homeowners and $250,000-$500,000 for auto—before becoming eligible for an umbrella policy.
What umbrella insurance covers—and some scenarios
Again, umbrella policies cover liabilities arising from accidents, injuries, and property damage above your standard insurance policies. A severe accident might result in you being held liable for millions of dollars, which is more than what typical home or auto policies handle.
Here are some hypothetical scenarios showing where umbrella policies could prove vital:
1. An auto accident that injures or kills others
Let’s say you get into an accident that severely injures two individuals, and they sue you for damages, including medical expenses, property damage, lost wages, etc. You have what’s considered relatively good liability coverage in your auto policy: 100/300/50. This might be enough to cover many accidents, and perhaps one of the people hurt was a stay-at-home spouse—their injuries were significant, but they will recover completely. The $100,000 per person limit in your policy is enough to pay their claim.
But say that the other person who was injured is a doctor, and their injuries have severely impacted or destroyed their ability to do their job. The resulting claim and judgment for medical bills and lost wages alone could easily exceed a million dollars. At that point, you would be responsible for all of it beyond the $100,000 per person limit.
But an umbrella policy of $1,000,000 that kicks in after the auto policy is exhausted would protect you up to $1,100,000 for that individual’s claim and any settlement or judgment against you.
2. Dog bites
Do you have a dog? We love our four-legged friends, but if your pooch bites someone, it could mean a lot of trouble, as the expenses of subsequent injuries and legal fees can be substantial. There are about 4.5 million dog bites every year. The Insurance Information Institute reported an average cost of related claims of $50,245 in 2020, which is an amount that most standard liability limits in home insurance policies would cover. (Again, their liability minimums are usually $100,000.)
But if your dog severely injures or kills someone, a claim could easily exceed this amount. Further, while most homeowners policies include liability coverage for damages and injuries caused by pets, some policies might not cover certain breeds perceived as “dangerous,” such as Pit Bulls and German Shepherds. Due to the perceived increased risks, covering these breeds may cost policyholders more or specifically require umbrella coverage.
Any list of “banned” dogs varies by provider, so check with yours. But note that “These lists are often hidden from consumers’ view in filings made by insurers to state insurance departments.” In addition, know that some insurance carriers may consider dog coverage on a case-by-case basis.
3. Accidents in or outside your home
Homeowners can be held liable for injuries sustained by visitors on their property. Even if someone comes onto the property uninvited, a lawsuit might happen if the injury or damage is due to your negligence. Here are a few examples:
- Someone slips on ice or snow in a homeowner’s driveway or front stairs
- Someone trips over a loose carpet, tile, or stairway railing
- A light fixture falls on a guest
In cases like those, a homeowner could be held liable if it’s successfully argued they failed to maintain the property.
Further, if you have a party at your house and a guest becomes intoxicated, you could be liable if that person subsequently causes injury, death, or property damage. While your homeowner’s policy most likely includes liquor liability coverage, the cost of damages and legal fees associated with an accident could rise far above the maximum amount of a standard policy.
Consider the auto coverage example we mentioned above involving a severely injured physician. In addition to your drunken guest, you could also be named in a lawsuit if the guest consumed alcohol in your home before they caused the accident.
The laws surrounding social host liability vary by state; however, in most cases, you can be held responsible for any injuries stemming from someone who has consumed too much alcohol at your event. Various laws also allow people injured in car accidents to sue the alcohol server for damages.
Protecting financial futures with umbrella insurance
Umbrella insurance offers extra protection that you might not need or think you’ll need. But we live in a litigious society, and unforeseen, incredibly costly accidents can happen.
The additional protection offered by an umbrella policy covers medical expenses, legal fees, and property damage for a range of events beyond the examples we’ve provided above. And in some cases, it can make the difference between recovering from a challenging time and dealing with financial ruin.
Speak with a qualified insurance expert to review your risks and situation to determine if umbrella coverage makes sense for you. NICRIS can help assess the right policies. If you have questions or you’d like a free, personalized insurance review, contact us today.