Umbrella insurance is fail-safe protection for personal assets. It’s intended to supplement your underlying insurance in the event of claims which exceed the liability limits of your standard auto, homeowner, and similar insurance.
Coverage limits start at $1 million and go up in million-dollar increments. To qualify for an umbrella policy, your base policies need to meet certain liability limit requirements.
Why do I need an umbrella?
If found liable for an amount not covered by or exceeding the limits of other policies, umbrella insurance can provide the coverage needed to protect your savings and net worth.
Here’s an example. During a moment of distracted driving, your teenager runs a red light and broadsides a $100,000 Range Rover driven by an oral surgeon. Her husband and mother are also in the car.
Although your teenager escapes with barely a scratch, all three of the passengers in the Range Rover are seriously injured.
The Range Rover needs over $40,000 in repairs, and treatment of the passengers’ injuries reaches $210,000. The oral surgeon also sues you for $250,000 (and wins) because her seriously broken arm will keep her off work for six months.
All told, you’re liable for $500,000 plus attorney’s fees, but the liability limit on your auto insurance policy is $300,000.
Thanks to your umbrella coverage, that $200,000+ difference doesn’t come out of your pocket.
Am I at high risk?
Although not required by law, umbrella coverage is highly advisable for every individual and family regardless of net worth. You don’t have to be a millionaire to be sued like one.
Should any of the following apply to you, it is recommended to maintain umbrella coverage and keep it updated as your assets or risk factors increase:
- You own property
- You have an inexperienced driver in your household
- You have significant savings, investments, or other assets
- You own things that frequently lead to injury lawsuits, such as swimming pools, trampolines, guns, or dogs
- You coach kids’ sports
- You frequently host parties in your home
- You regularly post reviews of products, services, and businesses
- You participate in sports in which you could accidentally harm another person
- You are a landlord
- You frequently travel outside the U.S.
- Your serve on the board of a nonprofit
- You are a public figure
Remember that umbrella policies cover harm caused to others or damages caused to others’ property. They do not cover your own property losses or medical care.
Trends in liability risk
Due to social and economic inflation factors, persons with significant liability risk need to review and increase their umbrella coverage. Settlements are growing due to the combination of social inflation and monetary inflation.
Social inflation is the term for the growth in lawsuit likelihood and settlement size. This growth has been driven by higher jury awards, liberal workers’ compensation claims, legislated compensation increases, the emergence of litigation funds for class action lawsuits, and new tort and negligence concepts.
The phenomenon has dramatically impacted the top 50 U.S. verdicts, with the median settlement rising from $28 million in 2014 to $54 million in 2018.
In other words, losing a liability lawsuit for practically any reason is becoming increasingly more expensive, and to protect your assets, your umbrella coverage limits need to keep up.
Economic inflation is the general increase in the price of goods and services that reduces purchasing power. The U.S. Consumer Price Index (CPI) rose 6.8% between November 2020 and November 2021. By June 2022, the inflation rate had hit 9.1% annually, the highest since 1981. As of July 2022, the rate had reduced somewhat but was still 8.5%.
Economic inflation has affected nearly all industries. Repairing or replacing a damaged vehicle or damaged building costs considerably more today than it did before the pandemic. Wage growth means that the potential liability amount for lost wages is also increasing. And medical costs are always on the rise.
We can help
Those who already have an umbrella policy need to review the policy limits and consider whether it’s time to increase them. Those without coverage will find that the peace of mind they gain by securing umbrella coverage is more than worth the annual premium.
Reach out to the BNC Personal Insurance Team to review your limits or purchase a new policy. We’re here to help you ensure your loved ones and assets are well protected.