Who Needs Personal Umbrella Insurance?

personal umbrella insurance

Having friends over for a few beers seems harmless enough—unless one of them drives off and gets into a serious accident. Then the insured may wind up in court. These days, the insured can be held liable for the damages that guests cause after the insured “allows them” to consume alcohol at the insured’s home and then “allows them” to drive. Some states have laws that mandate a host’s liability, much like a bartender’s liability. 

The insured could be responsible for the payment of medical bills, vehicle repair costs, lost time from work—and, in the worst case, claims for wrongful death that may result in huge monetary settlements. 

Does the insured have coverage for such a situation under a Personal Auto Policy or homeowners policy? Coverage will certainly be limited. 

Personal Umbrella Insurance 

Personal umbrella policies play a vital role in protecting against liabilities by providing broad coverage and high limits of coverage that most commonly sold personal liability coverages, known as underlying policies, do not provide. 

While homeowners or personal auto policies do provide coverage for their respective liability situations, often the limits aren’t high enough to cover all the damages that could be awarded in even a moderately severe case. In other words, if the policy has a $250,000 limit for automobile bodily injury and a court enters a judgment of $500,000, the insured will be responsible for the rest. 

In addition to extending home and auto (and other vehicle) insurance liability coverages, umbrella insurance also commonly covers an insured against the following causes of loss: 

  • property damage liability, 
  • landlord liability (for owner’s of rental units), 
  • bodily injury liability, 
  • libel/slander/defamation lawsuits, 
  • false arrest, 
  • malicious prosecution, 
  • violation of privacy rights, 
  • wrongful eviction or wrongful entry, and 
  • other types of lawsuits. 

Payment of defense costs, attorney fees and other expenses associated with the lawsuit, even if the lawsuit is groundless or frivolous in nature, may also be covered. The coverage of those costs and fees is in addition to the policy limits in most policies, but some insurers include it as part of the coverage limit. 

When a court hands down a liability judgment that exhausts the limits of the homeowners or automobile policy, the insured is responsible for the balance. This means the insured may have to sell his or her house, cash out IRAs or liquidate other assets in order to make the payment on the judgment. And, if assets are exhausted and the judgment is still not fully satisfied, the insured may have to dip into future earnings to pay the remainder of the outstanding judgment. One major liability case can wipe out the assets that took a lifetime to create. 

Want to know more about personal umbrella insurance? Check out our Advanced Thinking About Insurance continuing education classes. 

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