Queen City Risk Management

(716) 970-4200 • jason@queencityrm.com

Why do I need an umbrella policy?

When it rains, it pours. At least that is how the saying goes.

With insurance, basic insurance like homeowners and auto insurance comes in handy when life throws a slight drizzle of unfortunate accidents your way. But what happens when an accident occurs that creates a downpour of insurance claims that cannot be completely covered by auto or homeowners insurance?

ne of two things can happen; you’ll either live out the years following the accident trying to pay off claims that went above your insurance limits, or, if you purchased an umbrella policy, the umbrella policy will help pay off the remaining insurance costs.

The key takeaway from this metaphor? Having an umbrella policy can protect you from the heavy down pour of financial costs.

What is an umbrella policy?

According to NYCM Insurance, umbrella coverage is “an extra layer of Personal Liability Protection above what your Automobile or Homeowner Liability limits cover.”

If you have homeowners insurance, car insurance, and have valuable assets you would like to protect, consider purchasing an umbrella policy.

An umbrella policy covers both auto and homeowners insurance and comes into play when insurance claims are more than what your auto or homeowners plan will cover.

Here is how umbrella policies work:

Let’s say you are driving with four of your friends and are in a fender-bender. Since you hit the car from behind, you are at fault. Three of your friends are injured in the accident and  both cars have substantial damage. In total, all damages come to $500,000.

Your auto insurance policy will cover up to $300,000 in claims (depending on your current liability limits). This leaves you with a bill of $200,000 that needs to be paid.

If you had purchased an umbrella policy, this is when it will come into play. Umbrella policies can offer coverage from 1-5 million dollars.

So, in the example above, if you have an umbrella policy for 1 million dollars in coverage, your auto insurance will cover the limit of $300,000 and the umbrella policy will cover the remaining bill of $200,000.

Are umbrella policies expensive?

Coverage for an umbrella policy typically starts at $150 to $300 for 1 million in coverage. An increase in coverage will also increase the premium. One thing to note is that you’re required to carry higher limits in your home and auto insurance policies before purchasing an umbrella policy.

In other words, you cannot pay the lowest premium for auto or homeowners insurance and then add on an umbrella policy.

To determine the level of umbrella policy to purchase, consider these factors:

  • The value of your assets

  • Any risks you may face as a homeowner or a renter

  • A long commute to work

  • Your future earning potential (if you’re on track for a high paying career, you could be involved in a lawsuit targeting money you haven’t earned yet)

  • Participating in any potentially dangerous activities/hobbies

Protect yourself from the downpour

The insurance industry made a great move in calling this policy an “umbrella” policy -it’s the perfect metaphor for how an umbrella works. When it’s barely sprinkling you don’t need your umbrella, just like when there is a small accident your auto or homeowners insurance can cover the costs. But when there is a downpour, an umbrella is needed to protect you, just like an umbrella policy is needed to protect you when your auto or homeowners insurance policies have met their limits.

Talk to your insurance agent (844) 837-2869 to determine the right umbrella policy for your budget and lifestyle.