Your son blinds a playmate with his BB gun. Your daughter rear-ends a car, causing serious injuries to its driver. A neighbor breaks his neck by diving into the shallow end of your swimming pool. Your teenager’s friend drinks liquor at your house, then paralyzes another driver in a car crash. You serve on the board of a nonprofit that fails to pay its tax bill.
Which of these scenarios makes you a candidate for umbrella insurance? All of the above.
Umbrella insurance gives you a layer of additional liability coverage, above the limits of your homeowners, renters, auto and other policies. The liability portion of a typical auto insurance policy, for example, covers claims up to $500,000. But if you or one of your family members causes a serious or fatal accident, the costs can easily run into the millions. If you are sued, the umbrella policy covers the settlement, plus attorneys’ and court fees.
Only about 10% of homeowners carry umbrella insurance, said a February 2013 Consumer Reports study. But many more should, experts say.
“Some think umbrella insurance should just be for the rich,” said Thomas Simeone, a personal injury attorney in Washington. “Yes, the rich should have such a policy. But so should anyone with significant assets.”
“Significant” counts you if you have equity in your home or if you have a decent income.
“I tell people, ‘You don’t have to be a millionaire to be sued like on,'” said Ed Charlebois, vice president at Travelers Personal Insurance, who has seen clients sued for everything from hitting someone with a golf ball to accidentally shooting someone with a gun.
Here’s how it works: You or a member of your family causes a serious injury, or an injury occurs on your property. The injured party sues you. A personal injury attorney who represents the injured party researches your insurance coverage plus your assets and income. If your insurance is not adequate, the attorney “pursues your personal assets,” Simeone said. That is, the court can garnish your future wages and/or take money raised by liquidating your assets.
“We had one claim because a teen skier hit another skier, so the victim’s family sued,” Charlebois said. “Their homeowners insurance kicked in, but the victim’s medical bills were $500,000 and the homeowners policy only covered $300,000. So the umbrella insurance covered the remaining $200,000.”
“From the injured person’s perspective, it’s easier to collect from the insurance company than to chase down your assets,” Simeone said. From your perspective, it is easier to have insurance coverage than to lose your home, bank account and/or income in a lawsuit.
Most umbrella policies include sweeping coverage of property damage, bodily injuries and intangible injuries such as defamation of character. But they vary, insurers warn. The fine print taketh what the large print giveth, so read your umbrella policy carefully.
For example, if your employer turned its staff into independent contractors to relieve itself of the burden of providing health insurance, you should look at an umbrella policy to cover you in liability lawsuits that arise as a result of conducting your daily business.
“If you’re self-employed now, you have an added reason to own an umbrella policy, because you do not have an employer who is responsible for accidents while you’re working,” Simeone said.
“Look for the words ‘business pursuits’ to make sure they are included (in your umbrella policy),” Charlebois said. “And make sure the policy would cover a lawsuit related to your type of business.” A house cleaner, for example, is subject to lawsuits regarding theft or damage in the home. A writer, on the other hand, could be sued for libel. To cover your business activities, you may need to buy a professional liability insurance policy.
Serve on the board of a nonprofit, and you can be personally liable for damages it causes. The smaller the organization, the less likely it has insurance to cover its directors, so you may be vulnerable.
Having high-risk vehicles such as ATVs, boats and snowmobiles also triggers the need for umbrella policies, experts say. Some umbrella policies exclude accidents caused by certain vehicles, though.
“Your (insurance company’s) underwriter looks at the number of vehicles you own, if they are high-risk, who is driving them and what their driving histories are,” said Christopher Hackett, director of personal lines policy at the Property Casualty Insurers Association of American.” And, he’ll look at risks at your home such as a trampoline, zip line or pool, and if your pool has steps or a ladder for people to get out.”
An umbrella policy also may exclude what attorneys call “intentional torts,” such as assault and battery. “Intent” is the key word, so the court would decide whether your son intended to punch that other person during that bar fight.
Make sure claims by uninsured motorists are covered by your auto and/or umbrella policy, because they are sometimes excluded.
While some auto insurance policies cover your losses when you venture across the border, especially in Mexico or Canada, you may need an umbrella policy to cover your driving abroad, Hackett said. “Read your policy and call your insurance agent before you drive (a vehicle) outside the United States,” Hackett said.
Here’s the good news: Compared with other types of insurance, umbrella policies are cheap. You can get $1 million in coverage for about $200 a year, Charlebois said. The next million costs about $75 more. It is usually less expensive if you buy it from the same insurance company that sold you your auto and homeowners policies. Then, if you are sued, you do not have to juggle different insurance companies.
“In our litigious society, few people are not candidates for umbrella policies,” Hackett said. “You think $1 million in auto coverage is a lot, but if you put a young person in a wheelchair for the rest of his life, his expenses will be huge.”
Most umbrella claims Charlebois sees result from accidents caused by teen drivers, he said. “So, if you have teens in your house, especially,” he warned, “the light bulb should be going off.”
Article By: Leslie Mann Special
Source: Chicago Tribune