One thing I’ve learned over the years is there are several common misconceptions regarding personal umbrella insurance policies. In some cases, people who have one think it provides a blanket limit of protection but are often unclear as to how it really works. In other cases, people who don’t have one think they understand what it is but most of the time they don’t.
I can certainly empathize with these folks since the term “umbrella” can be interpreted a number of ways. Here are some of the more common misconceptions and the truth behind them.
Misconception #1: “I have an umbrella policy. Doesn’t that cover my jewelry?”
Unfortunately, it does not. For starters, a personal umbrella policy is a liability policy, meaning it doesn’t cover any type of physical property such as your home, your home’s contents, or your autos. This is probably the most common misunderstanding that I’ve heard, especially when the topic of jewelry, fine arts, or other valuables comes up. Many people think an umbrella policy will cover everything, especially when it comes to property.
Misconception #2: “This is just extra liability protection that goes over my auto policy, right?”
Yes, but in reality, it provides a lot more than just this type of protection! An umbrella policy will provide excess liability over your auto policy along with homeowner personal liability, watercraft liability, and potentially liability associated with owning rental properties.
Misconception #3: “I’m already paying a ton for auto insurance now that my 16-year-old is driving. Do I really need to consider paying for even more insurance?”
Absolutely. Some of the worst claims I have seen over the years involved youthful drivers and having the extra layer of protection made a tremendous difference. I have also seen auto claims involving adult drivers where serious injuries and/or deaths were involved and the umbrella policy helped our clients avoid having to pay settlements directly out of their own pocket.
Misconception #4: “An Umbrella policy is expensive.”
Actually, it’s not when you consider the amount of protection it provides. For example, a $1,000,000 umbrella policy for two adult drivers who own a home and two cars can be bought for under $200 a year.
Similarly, a $1,000,000 umbrella policy providing excess liability over homeowner personal liability and auto liability for two adult drivers, two youthful drivers, and five cars can be purchased for under $400 a year.
The real question is whether you can afford not to have an umbrella policy should you experience a claim. An umbrella policy is a relatively inexpensive way to protect yourself against large claims involving bodily injury and/or property damage to others. Limits start at $1,000,000 and can be bought in additional $1,000,000 increments up to $10,000,000 (or even more in some cases).
Hopefully, this article helped clarify some of the confusion that exists regarding this extremely valuable coverage. I will have part 2 next week.