Quick review: Personal umbrella insurance is a type of insurance designed to add extra liability insurance in addition to another insurance e.g. as a car or homeowner.
Here is an example of how the personal umbrella works.
Your car policy has a personal injury limit of $ 250,000 per person and $ 500,000 per accident. You're involved in a serious accident that causes permanent damage that exceeds the $ 250,000 limit per person. When the claim reaches $ 250,001 the "umbrella policy" brand kicks in and will continue to pay up to its policy limit.
The auto policy limits required for the umbrella are called the underlying minimum requirements
For car policy, these limits are usually one of the following:  $ 250,000 per person / $ 500,000 liability / $ 100,000 liability This means your insurance will pay up to $ 250,000 per person and up to $ 500,000 for personal injury liability for an accident. your insurance will pay up to $ 100,000 for property damage to others.This limit is often referred to as a "split" limit.
Why do insurance companies have these underlying requirements?
First, the umbrella is designed for CATASTROPHE situations. It is not designed to pay for individual claims for bodily injury or property damage. Think about it for a minute – if the majority of bodily injuries (BI) paid damages averaged $ 18,000 and property damage (PD) claims $ 4,500, the umbrella would kick in gear almost every time a claim is paid. The underlying requirements are designed to clear away the small BI and PD requirements. You can read a practical table that shows an average payment for both bodily injuries and property damage on the website of the Insurance Information Institute – Private Passenger Auto Insurance Losses, 2010-2019.
Secondly, the insurance company wants to ensure that you as an insured have something "skin in the game", ie that you are willing to receive and pay the premium for the higher limits. It shows that you are serious about covering.
What happens if I fail to maintain these underlying requirements?
So the personal umbrella policy has some pretty strict language that basically says this – you have to maintain the underlying boundaries. If you do not do so, the insurance company will only be liable to the extent they would have been liable if the underlying requirements were maintained. Here is an example that illustrates exactly what this means …
$ 250,000 per person bodily injury is the underlying minimum requirement for your carrier's umbrella policy. You decide to turn your nose up at the insurance company and carry only $ 100,000 per person.
This leaves a gap of $ 150,000 ($ 250,000 required – $ 100,000 transported = $ 150,000). The umbrella policy will "kick in" but only AFTER $ 250,000 has been reached. That means you have to pay $ 150,000 out of pocket. YIKES!
I'm pretty sure most people would rather pay the small increased premium for the right limits than bring hundreds of thousands of dollars out of their pocket when the catastrophic claim occurs.
So what have we learned?
A personal umbrella policy requires that the underlying policy meet the minimum coverage limits in order to eliminate the umbrella lost for small claims. Failure to meet these minimum requirements may result in you having to pay the distance between the minimum requirement and the limits you purchased, which may be BIG $$$$$.
Our agency has minimum coverage standards that we recommend to ensure you are adequately protected in the event of a claim. These minimum coverage standards include an umbrella. We never know how big the claim will be, but we can do our best to make sure you have as much coverage as possible, anyway.
If you want to talk about personal umbrella coverage, call us at (937) 592-4871 or send a request for umbrella quote . Our personal umbrellas are designed to work in accordance with your car insurance and home insurance so we are happy to see the entire package and design a program that works for you and your budget.