This year, we’re continuing our tradition of inviting a handful of our most trusted colleagues to share their ideas and expertise on topics of interest to our clients. For this blog, we’re glad to welcome back Fred Giron, an expert on property and casualty insurance with PHD Insurance Brokers.

 

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Have you heard of the term “Umbrella Policy,” but are not sure what it is? Has a professional, such as an attorney or financial planner recommended one, but you are not sure if it is right for you?

 

What is an umbrella policy?

In simple terms, an umbrella policy provides an additional layer of liability protection at a low cost. Umbrella coverage starts at $1 million in coverage and premiums start at a few hundred dollars per year.

An umbrella policy extends over your home, vehicle, and rental insurance policies. For example, if your automobile policy runs out of money for the other party’s injuries, then the umbrella helps pay for the remaining amount.

The goal is to have enough coverage to pay for a claim and keep the attorneys away from your assets, such as your home.

 

Three real-life examples in which an umbrella claim was paid:

• The child of an insured engaged in a head-on collision causing a fatality. The child was at fault. The jury awarded the family of the victim millions of dollars.
• An insured is gardening and water spills on the ground. Later that day a friend comes over and visits, slips on the wet floor, thus causing medical and dental expenses.
• A tenant of an insured gets ill from carbon monoxide poisoning from a faulty furnace and claims permanent brain injury and demands major compensation.

 

Three common misconceptions:

Misconception #1:  An umbrella policy extends over your property coverage.

Truth:  An umbrella policy does not extend over your property coverage. If you do not have enough dwelling coverage to rebuild your home after a fire, an umbrella policy will not help. An umbrella covers damage you cause to others, it does not apply to damage of your own property.

 

Misconception #2:  Since you have an umbrella, you can lower the liability limits on your auto and home insurance.

Truth:  The umbrella insurance company will require that you keep a minimum amount of liability coverage on the underlying policies. For vehicle insurance, it is typically $250,000 per person, $500,000 per accident, and $100,000 property damage. For properties, the minimum liability limit is usually $300,000.

 

Misconception #3:  The claim must happen on your property.

Truth:  A home insurance claim does not have to happen on your property. If, for example, you are walking your dog at the park and it bites a small child, your home insurance will pick up the claim and then the umbrella.

 

Why is an umbrella policy an excellent value?

You are exchanging only a few hundred dollars for a million(s) in liability protection. As a bonus, most umbrella policies provide defense costs outside their policy limits. What this means is if there is a potential covered claim, then the company will pay for your defense costs in addition to the settlement. So, if your umbrella coverage is $2 million and the attorney’s fees to defend you total $300,000, the attorney’s $300,000 in fees are paid outside of the $2 million in coverage that you have. Comparing the umbrella cost with what you would pay for an hour of an attorney’s time makes them quite a bargain!

 

What coverage limit is right for me?

Umbrella limits start at $1 million in coverage but can exceed $10 million in coverage.

In the United States, you can sue for anything and for any amount of money. As a rule of thumb, an umbrella limit should meet or exceed your assets (within reason), since your assets are what is typically at risk. A financial planner is a great resource to help calculate your net worth.

 

What if you have additional questions?

Your insurance agent and your financial planner are useful resources for additional information on umbrella policies.

When it is raining liabilities, umbrella insurance policies are a great source of protection so you don’t get “wet”!

 

Fred Giron
FGiron@phd-ins.com

Fred Giron, CPCU, AIC, is an account executive at PHD Insurance Brokers, Inc. for 10 years, in Los Alamitos. He specializes in personal line P&C products using a variety of insurance carriers. Fred has spoken on insurance at Cal State Fullerton, UC Irvine Extension, FPAOC Study Groups, and FPAOC Quarterly Meetings. He is also a member of the Orange County CPCU Society (Charted Property Casualty Underwriters) and licensed in Property & Casualty Insurance for 17 years.