Never Go Out Without an Umbrella

Many retirees figure that once they move past the stage in their lives where they were raising children, they can scale back on many of the expenses that they’ve been carrying for many years. Life insurance might not seem so important once you accumulate some savings and have enough for your own retirement and that of your spouse, if she or he survives you. Often retirees will downsize their homes to save on those carrying costs, including high homeowner’s insurance rates.

But there’s one insurance policy that retirees (and even people still in the middle of their working careers) shouldn’t scrimp on: umbrella insurance policies.

For those of you unfamiliar with this concept, umbrella insurance policies cover beyond what your homeowners and automobile policies cover. The typical highest liability coverage that standard automobile policies cover is in ranges of 300/500/100, which translates to $300,000 of bodily injury per person, $500,000 of bodily injury per accident and $100,000 of property damage.

Yet, what if you are involved in a terrible automobile accident and cause permanent injury to someone? Even though those liability protections seem like a lot of money, they are probably insufficient to protect you from catastrophic accidents. While you may believe that you are unlikely to experience such an occurrence, consider what liability you may have if you were to run into a surgeon and cause him permanent loss of the use of his hand. It doesn’t take a death to create significant liability.

If you were involved in an accident where your liability exceeded your coverage, then the insurance company might just settle the claim for their policy limits and let you handle the rest. This may also mean that you would have to incur significant defense attorney costs as well as subject your hard-earned net worth to the possible reaches of the claimant.

This is where umbrella liability protection kicks in. An umbrella policy will cover you for liability in excess of your car, homeowner’s, boat and other liability policies up to the umbrella limit. Typically, one can purchase umbrella policies totaling $1 million, $2 million or even $5 million of coverage. Unless you have a claims history, the cost of the coverage is relatively inexpensive. It might be a few hundred dollars annually or perhaps a little more if you want the higher coverage amounts.

While there is no requirement that you purchase the umbrella policy from the same carrier that underwrites your other insurance, I would suggest that you use the same carrier as the one that you have for your automobile policy. You don’t want to have a situation where the insurance carriers argue over who is liable for what, including your attorney defense costs. Since an incident involving your automobile is the most likely to create large legality problems, having that carrier underwrite the umbrella policy is probably your best choice, even if the umbrella is slightly more expensive.

No matter who you choose to underwrite your umbrella policy, you should ensure that your other coverage meet the umbrella’s stated requirements. In other words, once I purchase an umbrella policy, I usually can’t drop my automobile coverage limits to the state minimum.  Usually the umbrella policy requires that I maintain at least a 300/500/100 threshold on my automobile policy. Similar requirements may apply to my homeowner’s and boat coverage as well.

The final tidbit to know about umbrella coverage is the “uninsured motorist” or “UM” rider addition. While the standard umbrella pays someone that you may be liable to for negligence, the UM coverage pays you if someone injures you but doesn’t carry sufficient coverage of their own.  Many motorists in Florida carry the bare minimum of coverage, and if they cause you significant injury and if they have little or no assets (personal injury attorneys call these individuals “judgment proof” since even if you get a large judgment against them there is little or nothing to collect against) then you can’t get compensated for your losses. That is, unless you carry UM coverage on your umbrella. Then you can go against your own policy to the extent that the person who injures you is uninsured or underinsured. Most underwriters will only sell up to $1 million of UM coverage, and that will typically add several hundred dollars to the premium, but I believe it is well worth it.

So don’t give up that umbrella policy if you have any degree of net worth. If you have already dropped your umbrella coverage, or if you don’t have it, please consider speaking about it with your liability insurance carrier.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.


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