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Selecting umbrella insurance

Picture this: you are driving home from work on a rainy Tuesday night. You stop at a red light, and put your blinker on to make a right turn. As you turn, a person trying to avoid the rain runs in front of your car and you crash into him. Your first thought it, “Is the person alright?” Luckily the person is alive but has severely injured their arm and wrist. You leave the scene a little shaken up but thankful that no one was killed.

One month later you receive a letter in the mail. The person you crashed into was a 36 year old surgeon at a local hospital. As a result of the crash they needed surgery on their arm and wrist, physical therapy for 10 months, and will not be able to work for a year. The total bill after all expenses are taken into account is $900,000.

Even though this is a fictitious example, I know a client who had a very similar situation happen to them. Luckily for them, they carried a $1,000,000 Umbrella Insurance policy and their financial plan was left unaffected. Umbrella Insurance is coverage for excess liability that sits on top of, and in addition to, your primary insurance policies. If you have a catastrophic accident that exhausts the liability limits on both your Homeowners and Auto policies, your Umbrella policy will provide extra protection to keep your financial and retirement plan safe. Umbrella’s are used for both personal and commercial lines of insurance. All business owners should carry umbrella limits up to the value of their assets in the company to keep their businesses properly protected from unexpected occurrences.  


Do obtain umbrella policy quotes

An umbrella quote can range from $200-$300 for $1,000,000 in coverage. These policies are very affordable. If you currently have your Homeowners and Auto policy’s packaged with the same company, that same company will likely have the most affordable umbrella coverage. In the case that you do not have both with the same company, umbrella’s can be purchased from stand-alone carriers as well. The best course of action would be to contact a trusted broker to help you proceed forward.

Do carry proper injury limits on your auto insurance

In order to qualify for an Umbrella Policy, you need to carry a minimum of $300,000 Combined Single Limit or $250,000/$500,000 Split Limits of Bodily Injury Coverage. Umbrella policy’s only pick up payments once your primary limits have been exhausted. Companies require these minimum limits because Umbrella policy’s are meant to be excess coverage in catastrophic cases.

Do carry proper liability limits on your homeowners policy

In order to qualify for an Umbrella Policy you need to carry a minimum of $300,000 Liability Limits on your Homeowners Policy. This is for the exact same reasoning as Do #2. Umbrella policy’s only pick up payments once your primary limits have been exhausted. Companies require these minimum limits because Umbrella policy’s are meant to be excess coverage in catastrophic cases. 

Do read the fine print

Every company is different. Read the exclusions on your Umbrella Policy so you know exactly what is and isn’t covered. You do not want to be in a situation where you think you are covered for a claim, but it states clearly in the exclusions of the policy that you do not have this particular coverage. Not even the best broker or lawyer in the world will be able to help you get indemnified from a loss that is excluded by your policy.

Do ask for excess SUM Coverage on your umbrella quotes

SUM (Supplementary Uninsured/Under-insured Motorist) protects you in the case that someone who does not carry proper liability limits crashes into you. Their policy will only pay up to its limits even if your damages are higher. Make sure your Umbrella Policy includes SUM so you are fully protected against a not-at-fault accident.


Do not wait on getting insurance

The longer you wait to get a quote, the less likely it you’ll actually do it. Start shopping around right away for this coverage that can potentially save your financial plan. Not too many people have a liquid $1,000,000 in their emergency fund in the case of a bad accident. The $200-$300 you spend on an umbrella policy will be worth it’s weight in gold if there is ever an incident where you need it. 

Do not purchase coverage without checking A.M. Best

A.M. Best provides credit ratings and financial data for the Insurance Industry. Make sure the company insuring your umbrella coverage is rated at least a “B+” by A.M. Best. For every strong, stable insurance company, there is a “fly by night” impostor competing for your business. A.M. Best is the insurance industry equivalent of the Better Business Bureau for checking a company’s credibility. 

Do not purchase coverage without shopping around first

Make sure you have at least 2-3 quotes in your possession before making a final decision. Compare the coverages, exclusions, and prices to make sure you are getting the best protection for your money.

Do not purchase coverage based on price alone

Absolutely do not shop on the sole criteria of price. Insurance products are the same as tangible products in the case where, if it seems too good to be true, it probably is. Make sure the coverage is what you need before concerning yourself solely on price.

Do not hesitate to contact an insurance broker

Contact a broker if you have any questions about Umbrella Insurance. They can consult with you, and help you find a suitable product that fits closely into your price range.

Jumping cartoon

If you ever find yourself in the unfortunate circumstance that was described above, you’ll be happy you have Umbrella Insurance. Now that you are more knowledgeable on the product, you can see that this is an essential coverage for both home and business owner’s alike. For $200-$300 you can be covered for $1,000,000; it’s a no-brainer. We all wish for the best and hope that bad situations never occur. But in the case that they do, it is always better to know you are protected.

More expert advice about Home, Auto, and Theft Insurance

Photo Credits: Umbrellas @ James Smith's Umbrella Shop © Rev Dan Catt - Flickr; Check Man, Cross Man and Jump Man © ioannis kounadeas -

Matthew Avellino, MBAPresident/CEO, AC Risk Management INC

I am the President/CEO of AC Risk Management INC., a holistic Insurance and Financial Planning firm. Our specialty is Property & Casualty Insurance; but we also offer consultation in Life, Accident, & Health Insurance. We handle our client’s e...

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