Umbrella insurance policy: Why you might need it

Chances are you won't be sued for an automobile crash or an accident at your home that costs more than your liability insurance policy is willing to pay. But there is a type of insurance that can guarantee you won't be wiped out financially if that should happen.

Umbrella insurance policies, which offer additional liability insurance for claims exceeding your existing automobile or homeowner's insurance policies, are most commonly bought by wealthy individuals with substantial assets to protect.

But not-so-wealthy people also can benefit from the extra coverage if they own a home or condominium with a pool or trampoline, if they own a dog or if they have teenage drivers.

"If you own a home or condominium, it's definitely worth the time to look into getting one of these policies," said Nick Cummings, an insurance agent at Harrington Insurance Agency in Brockton, Mass.

Because a personal umbrella policy goes into effect after the underlying coverage is exhausted, certain limits usually must be met in order to purchase the extra coverage. Most companies want policyholders to have at least $250,000 in liability insurance on an auto policy and $300,000 in liability insurance on a homeowners' policy before authorizing an umbrella liability policy for $1 million in additional coverage.

Randy Rohrbaugh, deputy director of the Pennsylvania Department of Insurance, said consumers should analyze their personal assets to decide how much insurance they need and whether an umbrella insurance policy could suit them.

"If you don't have significant wealth, the odds of you being sued for damages beyond your wealth are unlikely," he said. "Even in the case of having a judgment against you, it's like squeezing blood out of a turnip."

Umbrella insurance is sold in $1 million increments and costs on average between $150 to $300 a year for the first $1 million in additional coverage. The next million will typically cost about $75 annually and about $50 for every million after that.

Some companies, however, might not want to write personal liability umbrella policies for public figures, politicians, police officers and, in some cases, even leaders of civic organizations, Cummings said.

"They could be sued for slander," he said, giving an example of the risks public figures present.

With auto and homeowners policies, the insurance agent who writes the policy has binding authority. But with umbrella policies, the completed application must be submitted to the company for approval.

Dave Phillips, a spokesman for State Farm Insurance Co. in Concordville, Pa., said in an increasingly litigious society where juries are awarding judgments in the millions, umbrella insurance policies are increasingly necessary.

"People used to think those individuals with a ton of assets or money were the ones who should have personal liability umbrella policies," Phillips said. "But because of how circumstances have evolved even a typical family getting into a two-vehicle auto accident with multiple passengers could be faced with a staggering liability."

The same holds true with children drivers, he said. The parent could inherit a liability. Damages could exceed the limits on a homeowners policy if a contractor is hurt on the property or there is a slip and fall from a guest at the home, he added.

Consumers are starting to realize that "their personal assets are at risk," he said.


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