Umbrella insurance is fail-safe protection for personal assets. It is intended to supplement your underlying insurance in the event of damages that exceed the liability limits of your regular auto, homeowner, and similar insurance policies.
Coverage limits start at $1 million and go up in millions of increments. To qualify for an umbrella policy, your base policies must meet certain liability limit requirements.
Why do I need an umbrella?
If you are found liable for an amount not covered by or exceeding the limits of other policies, umbrella insurance can provide the coverage needed to protect your savings and net worth.
Here is an example. In a moment of distracted driving, your teenager runs a red light and throws a $100,000 Range Rover driven by an oral surgeon. Her husband and mother are also in the car.
Although your teenager escapes with barely a scratch, all three occupants of the Range Rover are seriously injured.
The Range Rover needs over $40,000 in repairs and the treatment of the passengers’ injuries reaches $210,000. The oral surgeon also sues you for $250,000 (and wins) because her severely broken arm will keep her out of work for six months.
All told, you are liable for $500,000 plus attorney’s fees, but the liability limit on your auto insurance is $300,000.
Thanks to your umbrella coverage, that $200,000+ difference won’t come out of pocket.
Am I at high risk?
Although not required by law, umbrella coverage is highly recommended for every individual and family regardless of net worth. You don’t have to be a millionaire to be sued as one.
If any of the following apply to you, it is recommended to maintain umbrella coverage and keep it updated as your assets or risk factors increase:
- You own property
- You have an inexperienced driver in your household
- You have significant savings, investments or other assets
- You own things that often lead to injury lawsuits, such as swimming pools, trampolines, guns or dogs
- You practice children’s sports
- You often hold parties in your home
- You regularly publish reviews of products, services and companies
- You participate in sports where you could accidentally injure another person
- You are a landlord
- You often travel outside the United States
- You sit on the board of a non-profit organization
- You are a public figure
Remember that umbrella insurance covers damage caused to others or damage caused to other people’s property. They do not cover your own property loss or medical care.
Trends in liability risk
Due to social and economic inflationary factors, individuals with significant liability risk must review and increase their umbrella coverage. Settlements grow due to the combination of social inflation and monetary inflation.
Social inflation is the term for the growth in trial probability and settlement size. This growth has been fueled by higher jury awards, liberal workers’ compensation claims, statutory compensation increases, the rise of class action litigation, and new concepts of tort and negligence.
The phenomenon has dramatically affected the top 50 US judges, with the median settlement rising from $28 million in 2014 to $54 million in 2018.
In other words, losing a liability lawsuit for virtually any reason becomes increasingly expensive, and to protect your assets, your umbrella coverage limits must keep up.
Economic inflation is the general increase in prices of goods and services that reduces purchasing power. The US Consumer Price Index (CPI) rose by 6.8% between November 2020 and November 2021. By June 2022, the inflation rate had reached 9.1% annually, the highest since 1981. As of July 2022, the rate had decreased slightly but was still 8.5%.
Economic inflation has affected almost all industries. Repairing or replacing a damaged vehicle or building costs significantly more today than it did before the pandemic. The increase in wages means that the potential liability amount for lost wages also increases. And medical costs are always on the rise.
We can help
Those who already have an umbrella policy need to review the policy limits and consider whether it is time to increase them. Those without coverage will find that the peace of mind they get from securing umbrella coverage is more than worth the annual premium.
Contact the BNC Personal Insurance Team to review your limits or purchase a new policy. We are here to help you ensure that your loved ones and assets are well protected.