Umbrella Policy vs. Higher Base Limits: When Each One Makes Sense

By Mike Rice, Principal and Owner, American Heritage Insurance Group

A question I hear from our insureds across Greater Cincinnati and Springfield, Ohio is, “Should I increase the liability limits on my current policies, or should I consider an umbrella policy?” The answer depends on your individual situation, including what your insurance company offers, your assets, and your lifestyle. Higher base limits increase the liability coverage on your existing policies, while an umbrella adds another layer of liability protection above them.

What Are Base Limits?

Your base limits are the liability limits included in your homeowners and auto insurance policies. For example, your homeowners policy has a personal liability limit, while your auto policy has limits for bodily injury and property damage.

Some insurance companies allow you to increase those limits substantially. Others don’t. If your current company doesn’t offer the limits you’re looking for, an umbrella can provide another option.

I like to think of an umbrella as an additional layer sitting on top of your existing policies. For example, if you have $100,000 of liability coverage on your homeowners policy and a $1 million umbrella, you’d have $1.1 million in liability protection. At American Heritage Insurance Group, we typically discuss umbrella limits ranging from $1 million to $5 million, with some situations considering higher limits.

When Does an Umbrella Policy Make Sense?

When I’m helping a client decide whether an umbrella makes sense, I look at two major things: your net worth and your lifestyle. Your net worth tells me how much you stand to lose if a lawsuit goes past your home or auto limits. Your lifestyle tells me how likely that lawsuit is in the first place.

A handful of everyday situations raise that risk. I’ll consider whether you:

• Have teenage drivers
• Own a dog
• Have a pool or trampoline
• Host frequent parties
• Own a secondary home
• Have a boat, jet ski, ATV, motorcycle, or four-wheeler
• Spend a lot of time driving
• Regularly carpool children
• Are active on social media (a post or online review can lead to a defamation lawsuit)
• Participate in volunteer activities

None of these automatically means you need an umbrella. They’re simply factors that can help us understand your overall liability exposure.
I sometimes describe an umbrella as “sleep at night” insurance, which is an additional layer of protection that can provide greater peace of mind if a serious covered incident occurs.

An Umbrella Is More Than an Extra Number

An umbrella can also provide legal defense when a covered situation results in a lawsuit. For example, a young driver, a dog, recreational equipment, or frequently hosting people at your home can create circumstances worth considering when we’re reviewing your personal liability protection.

That doesn’t mean something will happen. It simply means I want to understand your lifestyle so we can have an informed conversation about your coverage.

What Doesn’t an Umbrella Cover?

Despite the name, an umbrella doesn’t cover everything.

A personal umbrella provides additional liability protection for personal activities. It doesn’t cover intentional acts or criminal activity, and it doesn’t automatically cover business activities.

It also isn’t insurance for your owned belongings or contents of your home, condo or apartment.

For example, if your dog gets loose and damages your neighbor’s garage, that can fall under liability coverage. If your dog damages your own couch, however, your umbrella doesn’t cover the couch.

How American Heritage Helps Clients Decide

I don’t want to simply tell a client, “You need an umbrella.” I want to understand their situation first. Two households with the same home and the same cars can need different coverage, depending on who’s behind the wheel and how they spend their weekends. Getting to know yours takes a little longer. It also means the recommendation I give you fits the way you live.

When we sit down together, I’ll ask questions about:

• Your assets and net worth
• Household drivers
• Vehicles and driving habits
• Pets and recreational activities
• Your home and other properties
• Your current liability limits
• What limits your insurance company offers
• Whether an umbrella makes financial sense for you

I’ll also consider factors such as driving records, the number of vehicles and drivers, and eligibility requirements. In some cases, a driving history may make someone ineligible for an umbrella.

My goal is to look at the whole picture and help you understand what level of liability protection makes sense for you, not simply choose the largest number available.

Umbrella or higher limits: how to decide

Higher base limits work well for some households. An umbrella makes more sense for others, usually once your assets or your risks (a teen driver, a rental property) start to outgrow what your home and auto policies can cover. If you’d like a second opinion, send me the declarations pages for your home and auto policies. My team at American Heritage Insurance Group and I will price both options across the dozens of carriers we represent and show you, side by side, what each one costs and covers. The decision stays yours, on your own timeline, with no pressure from us.