How necessary is umbrella coverage?

Question from Lindsey J. from Fishers:

My insurance agent is always trying to sell me an umbrella policy. Is this something I should consider adding? It just seems like an extra cost.


Response from Jamie Ianigro:

It sounds like you have a good agent. I always encourage my clients to at least consider adding the extra layer of liability protection that an umbrella/catastrophe policy will add. An umbrella policy is really all about having the peace of mind in knowing that your family and assets are protected.

There are many ways to end up with an umbrella claim but the most common umbrella claim is an auto accident involving multiple injuries and very costly medical bills. The other common claim is an incident on your property that results in injury. Medical and legal costs can eat up the underlying limits of your homeowner, auto, boat or motorcycle policy pretty quickly. Your umbrella policy or your personal assets cover these costs when your policy limits are exhausted.

This is definitely a topic you should discuss with your independent insurance agent to make sure you are protected by a level of coverage that you are comfortable with. Most people should be pretty comfortable with a coverage limit of $1 million, but limits exceeding $10 million are available if you are looking for more.

Umbrella claims can happen no matter how prepared you are. Instead of talking about prevention this week, I want to show a couple of claim scenarios to illustrate how an umbrella policy will work.

Scenario #1: The insured’s son was driving his car on a short road trip with a friend, the claimant. The car drifted off the road and into a phone pole when the son fell asleep at the wheel. The passenger was hospitalized for more than a month with broken bones and internal injuries. The hospitalization was followed by some time in a wheelchair, but he was able to walk again after six months of physical therapy. This claim cost $800,000 with $300,000 coming from the auto limits and $500,000 coming from the umbrella limits.

Scenario #2: The insured is having a summer barbeque and one of the guests steps off the edge of a retaining wall resulting in a spinal cord injury. He required multiple surgeries, an extended hospital stay and physical therapy. This claim cost $1.8 million with $1 million coming from the homeowner’s limits and $800,000 coming from the umbrella limits.