Is Umbrella Insurance Enough?
Umbrella insurance adds coverage above your home, car and boat policies, but it does not protect the assets themselves. How it works and where it falls short.
Blake Harris · Florida Bar #86486, Colorado Bar #459424 min readUmbrella insurance is used to supplement other types of insurance such as car, home, or yacht insurance. This type of insurance allows you to obtain extra coverage which can be applied as needed to another insurance policy.
While umbrella insurance provides a cushion between a creditor and your assets, it doesn’t actually protect the underlying asset from lawsuits and therefore should be used in conjunction with other asset protection strategies as opposed to as a stand alone solution. Furthermore, certain liabilities are not covered by any insurance policy.
How an Umbrella Policy Works
Here is an example of how an umbrella policy operates and its short comings.
For example, let’s say you have the following assets and basic insurance coverage.
- Home: $2m
- Boat: $1M
- Car: $1M
- Umbrella: $1M
If you are sued due to an accident involving your home, boat, or car you can apply the $1M of coverage to your home, boat, or car giving you the following amount of coverage:
- Home: $3M
- Boat: $2M
- Car: $2M
Where an Umbrella Policy Falls Short
However, there are several things which could go wrong including.
- A claim goes beyond policy limits.
- A claim arises from an incident unrelated to your home, car, or boat.
- A payment is sent late to the insurance company and there is a temporary lapse in coverage.
Insurance as One Layer of Asset Protection
Due to these potential risks, individuals with significant assets should consider engaging in additional types of asset protection strategies such as exemption planning and utilizing asset protection trusts.
Ultimately, asset protection comes down to settlement leverage. Both basic insurance and umbrella insurance provide a helpful level of protection but these strategies work best when done in addition to other asset protection strategies as opposed to in place of other strategies.
Frequently asked
Frequently asked questions
Usually not on its own. An umbrella policy adds liability coverage above your home, car and boat policies, but it does not protect the underlying assets, and some liabilities are not covered by any insurance policy. It generally works best alongside other strategies, such as exemption planning and an asset protection trust.
It supplements your other policies. If a claim from an accident involving your home, car or boat exceeds that policy's limit, the umbrella coverage can be applied to it. A $1 million umbrella over a $1 million car policy, for example, can give $2 million of coverage for a car accident.
Three common gaps are a claim that goes beyond the policy limits, a claim from an incident unrelated to your home, car or boat, and a temporary lapse in coverage after a late premium payment.
Generally not intentional harm. New York's insurance regulator has written that liability insurance for intentional wrongs is prohibited because deliberate misconduct lacks the fortuity insurance requires, and the NAIC lists punitive damages among what umbrella policies do not cover. The exact answer depends on your policy and your state.
Generally not, if it is a personal umbrella. Professional liability is sold as a separate line of insurance, and personal umbrellas commonly exclude claims connected with your business, profession or occupation. Your own policy's exclusions control, so read them.