Do You Need Umbrella Insurance?

do you need umbrella insurance

Some forms of insurance are required by law (auto insurance, business insurance, health insurance, etc.). Some are not. One form of insurance that is often overlooked, but incredibly important, is umbrella coverage.

What Is Umbrella Insurance?

Given its essentially, ‘back up’ insurance, many people simply don’t bother with it.

Wikipedia officially defines umbrella insurance as “liability insurance that is in excess of specified other policies and also potentially primary insurance for losses not covered by the other policies.”

Since umbrella coverage is characterized by excess limits, companies typically obtain coverage, not individuals, given their exposure is usually multiples of that of any person. Although personal umbrella insurance is not well known, it is a coverage that should be seriously considered by everyone.

Who Needs Umbrella Insurance?

Whether you purchased your first investment property, opened your own business, or simply purchased a vehicle for your child; you’d be surprised the amount of liability exposure you carry.

Typically, you are covered by your underlying insurance policy, which is auto, home (condo/renters), or business insurance. However, when they exceed the limits, umbrella insurance comes into play. The litigious environment we currently live in makes umbrella insurance much more important.

  • A slip and fall at your store or on your property.
  • A lawsuit where the judge finds you liable.
  • Your run of the mill auto accident that has simply run through your bodily injury or collision coverage limits.

All of these examples would require umbrella insurance. Not because you’re not carrying underlying coverage, but because the limits of the underlying coverage were exceeded.

My Personal Search for Umbrella Coverage

Once you are ready to compare umbrella insurance quotes, you’ll find that there’s not as many industry players as they are in other insurance markets, such as auto. During my search for umbrella insurance I tested a few markets:

  • The insurance carrier that covers my vehicle.
  • The insurance company that covers my home.
  • An insurance carrier that provides personal umbrella coverage on a standalone basis.

The carrier that covered my car didn’t offer umbrella coverage, and the carrier that covered my home required that they cover the underlying auto insurance for all umbrella policies. Since I was not going to move my auto coverage for the sake of an umbrella insurance quote, my only option was to go with insurance carriers that could quote coverage on a standalone basis. Given the nature of umbrella coverage, each application is granular when trying to understand your current underlying coverage.

During my experience, the insurance carrier required certain minimum underlying auto and home coverage limits. It also carried coverage exclusions that were fairly unique. In addition, I found out that personal umbrella coverage is typically paid upfront, not in the customary monthly installments associated with home or auto policies.

Obtaining Umbrella Insurance Quotes

There were salient takeaways my search for personal umbrella coverage provided:

  • Take the application process seriously. When completing, make sure you answer the questions thoroughly, as it would be a travesty to be denied coverage due to an application misunderstanding.
  • Find the ‘right’ carrier for you. The inherent risk associated with this type of coverage naturally weeds out those carriers that are not serious about devoting the proper resources to underwrite and ultimately serve personal umbrella insurance customers.
  • Umbrella coverage is not ‘catch all’ coverage. It certainly increases your limits for several risks, and even provides underlying coverage for gaps in your current policy. However, it does carry important exclusions that should be thoroughly understood prior to binding coverage.

One More Thing

It may be slightly more difficult to secure personal umbrella coverage than other more main stream insurance, but it’s just as important. As you embark on the quest to obtain and compare quotes, keep in mind what underlying coverage you currently have in place, where you feel you may have the most exposure, and think long term.

Ultimately, you are purchasing personal umbrella insurance in hopes of never using it, and obtaining peace of mind. Best of luck with your search!

About Dale Williams

Dale Q. Williams, MBA, is a well-respected financial executive whose experience spans from insurance to investment banking. Dale has first hand underwriting experience through working for one of the largest U.S. based insurance carriers, and advisory experience from working for several bulge-bracket and middle-market investment banks. Dale also received his MBA from University of Chicago Booth School of Business, with concentrations in finance and accounting.