Fire Life

Should You Have Umbrella Insurance?

By Diana Palmieri

You are sitting outside on your front porch on a beautiful Sunday morning, sipping coffee and reading the paper.  Your dog Max is sitting there with you.  Max is normally a good boy, but as we know, dogs can be quite unpredictable.  Your neighbor’s boy, Johnnie, decides to stride up your walkway to say hello and surprises Max, who bites Johnnie several times, even getting him in the face. There are many stitches, some reconstructive surgery, then pain and suffering that Johnnie will have to deal with.  Then there’s the lawsuit to follow.  Yikes.  A good friend mentioned umbrella insurance to you a few months ago, and you have been meaning to talk about it with your spouse and insurance agent.  Double yikes.

According to the Insurance Information Institute, dog bites accounted for more than one-third of insurance liability claims, costing nearly $413 million in 2010. “The average cost per claim has risen over the last eight years (2003-2010), which can be attributed to increased medical costs as well as the size of settlements, judgments, and jury awards given to plaintiffs, which have risen well above the rate of inflation in recent years,” said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the Insurance Information Institute.  According to the Humane Society of the United States, 39 percent of U.S. households own a dog (Humane Society National Pet Owner’s Survey 2009-2010).  Even if you are not part of the 39 percent of households owning a dog, you still need to read on.  Liability lurks everywhere; people sue at the drop of a hat.

What Is Umbrella Insurance?

Think of yourself holding your homeowner’s policy in one hand, your auto policy in your other hand, and then there’s this “umbrella” over your head.  An umbrella policy acts as an additional layer of protection above the limits of your primary coverage.  This protection is designed to “kick in” when the liability on other current policies has been exhausted. 

Will an Umbrella Policy Take a “Bite” Out of My Pocketbook?

Surprisingly, umbrella insurance only costs a couple of hundred dollars per $1 million worth of coverage.  To qualify for your umbrella policy, you will have to adjust the liability amounts on your homeowner’s and auto policy to the maximum amounts. The benefits can be used to pay jury awards, medical expenses, lost wages, and legal fees, up to the policy limits. Max the dog is a very general example of a “what if.” There is a lot more that can happen on your property or even while driving. In addition to owing a dog, if you own a pool or recreational vehicles, have teenagers at home, or even entertain frequently, you should consider an umbrella policy. 

How Does Umbrella Insurance Work?

Here is a very general example of how a policy might work:

Your home insurance probably provides both property and liability insurance coverage. Let’s say that your home liability coverage has a limit of $200k, but a guest slips and falls on your back patio at a party and sues you for $1.5 million.  If you have umbrella insurance coverage, you would pay the deductible for the home liability insurance, and the home insurance policy would cover up to $200k. Then the umbrella insurance policy would go into effect and pay for the rest.   If you don’t have an umbrella policy in place, well, you do the math.  You would have to come up with the rest of the money your homeowner’s won’t cover.

Part of your financial planning is risk management.  Consider this insurance, and speak to your homeowner or auto insurance provider today. They can tailor a policy to your needs and financial situation.  Having the added protection of an umbrella policy is liability coverage no one should go without. 

The information contained in this article is not intended to constitute legal, accounting, tax, investment, consulting or other professional advice or services. For specific information that applies to your circumstances you should consult a qualified tax advisor or independent professional advisory.

Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB.