Santa Rosa Insurance Agency LLC

Personal Umbrella Insurance

What is an umbrella policy? 

Quite simply, an umbrella insurance policy adds additional liability insurance to all the policies that are listed "under the umbrella". This means that if you have $500,000 in liability coverage on your car which is listed on your umbrella policy and your umbrella has $1,000,000 in coverage, then your car has a total of $1,500,000 in liability coverage. Also, one umbrella is meant to cover multiple things. For example, a person might list their three family cars, house, vacation home, boat, and a duplex that they rent out all on their one umbrella policy. 

The most common personal umbrella policy is for $1,000,000, but most companies including Farmers will allow a person to have up to $5,000,000 on an umbrella policy if it is needed.

Why would I need umbrella insurance?

An umbrella policy is needed when the underlying policy doesn't provide enough liability coverage. For example, if you were in a boating accident that was your fault and someone was seriously injured. The liability coverage on your boat may not be enough to pay for the other person's medical expenses and damages. That is when an umbrella would "kick in" to cover additional costs up to it's own limit.

Often umbrellas are just sold to people that have high value assets, like people that own a home, some vehicles, and some rental units. Umbrellas can be valuable for others types of people as well. For example, a 28 year old that doesn't own much, but has an income of 70,000 per year. Their income and future income is actually an asset. If this person was "at fault" for a major incident and their insurance wasn't enough to cover the expenses, they could be sued for their future earnings. 

Let's look at two detailed examples:

Example 1: Tom gets in a car accident that is his fault and unfortunately a pedestrian is hit and has $100,000 in medical bills. In addition to the medical bills they can no longer work and therefore have lost $50,000 per year for the next 20 years. 

        Expenses: $100,000 (medical) + (20*$50,000) (lost income)       $1,100,000

        Tom's Assets: Car (worth $5,000) , $2,000 in savings , a house (worth $500,000 with
                              only $200,000 paid off), and Tom earns $100,000 per year in income  
                              $207,000 in assets plus up to $25,000 per year in income that could be
                              taken in a lawsuit.

        Tom's Insurance: California State Minimum: 15,000/30,000/5,000 

        What happens: Tom will have to sell his car, his home, and pay $25,000 per year until
                                he pays off the court settlement.

    

        

Example 2: Everything is the same as example 1 except Tom's insurance. 

        Tom's Insurance: $250,000/$500,000/$100,000 plus a $1,000,000 umbrella policy.

       What Happens: Tom's car insurance pays $250,000 and then Tom's umbrella insurance
                                pays the remaining $850,000. Tom doesn't even pay a deductible.

        

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