Personal Umbrella Liability

If you (or a member of your household) accidentally injure another person or damage someone’s property, liability insurance protects your assets. Because it protects you if a third party files a claim against you, it’s also known as “third-party insurance.” In the event of a lawsuit, liability insurance will pay for a legal defense as well as medical and/or property claims for which you are found legally liable, up to the limits of the policy. You can purchase personal liability insurance as part of a package policy (such as homeowners, renters, or auto insurance), or as a separate policy (such as a personal umbrella liability policy).

An umbrella policy will either pay the part of the claim in excess of the limits of your basic liability coverage or pay for certain losses not covered by your basic personal liability insurance if you are found to be legally responsible for injuring someone or damaging someone’s property. No one expects to be sued, but a good personal liability policy can certainly help to protect both your family and their future.



Why do you need Umbrella Insurance?

Most states now require you to carry auto insurance with minimum liability coverage (which varies from state to state), and a standard homeowner’s policies usually provide $100,000 to $300,000 worth of liability coverage. You can purchase additional liability coverage under these policies, but amounts may be limited. You’ll have to pay for anything beyond the liability coverage limits of your homeowners/renters or auto insurance policy without a personal umbrella liability policy.

How does it work?

Designed to kick in when your other liability coverage is depleted, personal umbrella liability insurance supplements the basic liability coverage provided by your other insurance. Once the basic liability limit under the primary policy is reached, your personal umbrella liability policy covers the remaining costs, up to the policy limits. That’s why umbrella liability insurance usually carries a high deductible. Insurance companies typically require you to have homeowners/renters and auto liability insurance equal to the amount of your personal umbrella deductible.

When should you get it?

There’s no time like the present! Almost anyone can be subject to a major liability lawsuit, but there are some events that increase your liability exposure–like starting a home-based business, or having a teenaged child who gets his or her driver’s license–so you should examine your liability coverage at these times.

What does it cover?

Typically, a personal umbrella liability policy provides the following protection, up to the coverage limits specified in the policy:

  •     Protection for claims of personal injuries or property damage caused by you, members of your family/household, or hazards on your property, for which you are found legally liable
  •     Personal liability coverage for incidents which occur on or off your property
  •     Additional protection above your basic auto policy for auto-related liabilities
  •     Protection against non-business-related personal injury claims, such as slander, libel, wrongful
  •     eviction, and false arrest
  •     Legal defense costs for a covered loss, including lawyers’ fees and associated court costs

So, how much is enough?

There is no one-size-fits-all answer when it comes to determining the correct level of personal liability insurance coverage. Some people think that you only need enough liability insurance to protect your assets, but a major judgment against you could easily deplete your assets as well as put your future earnings in jeopardy. Some factors you should consider include the following:

  • Do you often entertain?
  • Do you operate a business in your home?
  • Do you have a long commute to work or do you take frequent trips in your car?
  • Do you have teenage children? Do they drive?
  • Does your job or your economic situation make you a likely target for a lawsuit



The personal umbrella liability policy is an insurance contract designed to accomplish two goals.

  • First, it increases the liability protection beyond what the policy owner already has in his or her homeowners and automobile insurance policies.
  • Second, the personal umbrella policy is designed to fill in the gaps in a policy owner’s liability coverage since several types of liability exposures exist that are not covered by automobile and homeowners policies.

Together with homeowners and automobile insurance policies, broad personnel liability protection is attained through the purchase of a personal umbrella policy.

How do I know if I need a personal umbrella liability policy?

It used to be that the only people who needed personal umbrella liability policies were wealthy individuals who had sizable amounts of personal assets that would be at risk in a lawsuit.

However, in our very litigious society, many people are realizing that they have a need for more liability insurance than what is provided under their homeowners and automobile insurance policies. The personal umbrella policy is ideally suited to provide this protection at extremely affordable rates.

How much life insurance should an individual own?

Rough “rules of thumb” suggest an amount of life insurance equal to 6 to 8 times annual earnings. However, many factors should be taken into account in determining a more precise estimate of the amount of life insurance needed.

Important factors include:

  1. Income sources (and amounts) other than salary/earnings
  2. Whether or not the individual is married and, if so, what is the spouse’s earning capacity
  3. The number of individuals who are financially dependent on the insured
  4. The amount of death benefits payable from Social Security and from an employer sponsored life insurance plan
  5. Whether any special life insurance needs exist (e.g., mortgage repayment, education fund, estate planning need), etc.

It is recommended that a person’s insurance adviser be contacted for a precise calculation of how much life insurance is needed.

What about purchasing life insurance on a spouse and on children?

In certain circumstances, it may be advisable to purchase life insurance on children; generally, however, such purchases should not be made in lieu of purchasing appropriate amounts of life insurance on the family breadwinner(s). It is of utmost importance that the income earning capacity of the primary breadwinner be fully protected, if possible, through the purchase of the required amount of life insurance before contemplating the purchase of life insurance on children or on a non-wage earning spouse. In a dual-earning household, it is important to protect the income earning capacity of both spouses. Life insurance on a non-wage earning spouse is often recommended for the purpose of paying for household services lost at this individual’s death.

Should term insurance or cash value life insurance be purchased?

Although a difficult question–one whose answer will vary depending on circumstances–several principles should be followed in addressing this issue.

It must first be recognized that in any life insurance purchasing decision, there are at least two basic questions that must be answered:

  1. “How much life insurance should I buy?” and
  2. “What type of life insurance policy should I buy?”

The question contained in (1) involves an “insurance” decision and the question contained in (2) requires a “financial” decision.

The “insurance” question should always be resolved first. For example, the amount of life insurance that you need may be so large that the only way in which this needed amount of insurance can be afforded is through the purchase of term insurance with its lower premium requirements.

If your ability (and willingness) to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, it is then appropriate to consider the “financial” decision–which type of policy to buy. Important factors affecting the “financial” decision include your income tax bracket, whether the need for life insurance is short-term or long-term (e.g., 20 years or longer), and the rate of return on alternative investments possessing similar risk.

How does mortgage protection term insurance differ from other types of term life insurance?

The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods, e.g., 15, 20, 25 or 30 years. Although the face amount decreases over time, the premium is usually level in amount. Further, the premium payment period often is shorter than the maximum period of insurance coverage–for example, a 20-year mortgage protection policy might require that level premiums be paid over the first 17 years.

Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?

Yes; the purchase of a new mortgage protection term insurance policy is usually not required by the lender. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured’s death.

Credit life insurance is frequently recommended in conjunction with the taking out of an installment loan when purchasing expensive appliances or a new car, or for debt consolidation.

Is credit life insurance a good buy?

Credit life insurance is frequently more expensive than traditional term life insurance. Further, if you already own a sufficient amount of life insurance to cover your financial needs, including debt repayment, the purchase of credit life insurance is normally not advisable due to its relatively high cost. Therefore when purchasing Term Life Insurance, it’s always good advice if you consider purchasing enough to cover more than your current debts and needs. The reason being, should you require Credit Life in the future you would be more likely to have the additional coverage built in to your current level of protection. Which could easily save you the cost on additional short-term (high cost) additional coverages.

I’m single. Do I need life insurance?

Single people often think they don’t need life insurance, and in many cases, they are right. However, there are many factors that determine your need for life insurance; marital status is just one.

First of all, do you have any dependents? Just because you aren’t married doesn’t mean you have no financial responsibilities. If you have children, or if you provide support for a parent or grandparent, your death could create a serious financial hardship for these dependents. Life insurance can provide a continued stream of income for your loved ones if you die prematurely. It can also provide peace of mind for you, knowing that they will be taken care of when you’re gone.

Do you have a mortgage or other loans that are jointly held with a cosigner? If so, your death would leave the cosigner responsible for the entire debt. You might want to consider purchasing at least enough life insurance to cover these debts in the event of your death. If you have debts for which you alone are responsible, your creditors can make a claim for payment against any assets in your estate.

Are you at risk for any serious medical conditions? If, for example, your family medical history includes certain genetic conditions (diabetes, certain types of cancer, etc.), it may make sense to purchase life insurance while you are young and healthy. Purchasing life insurance after you develop such a condition could be difficult, or even impossible. If you choose to buy insurance for this reason, consider adding a guaranteed insurability rider to your policy. This rider guarantees you the right to purchase additional insurance at specified times, without having to provide proof of insurability.

If you died tomorrow, would you leave enough to cover your funeral expenses? If not, who would be responsible for paying? For many families, even a relatively simple funeral can create a major financial burden. For this reason alone, you might consider purchasing a small life insurance policy, or even a simple burial policy. As an alternative, you could invest the premiums you would spend on such a policy, and make sure your family knows this investment is earmarked for your final expenses, should the need arise.

Even if you determine that you don’t need life insurance, make sure your other insurance needs are covered. You may not realize it, but disability insurance is just as important as life insurance. Statistically speaking, you are much more likely to become disabled than to die prematurely. Disability insurance can replace lost income if you are unable to work due to serious illness or injury.

I applied for a life insurance policy and was told that I would have to take a medical exam. What should I expect at this exam, and is there anything I should do to prepare for it?

Generally, you won’t have to take a complete medical exam if you’re under age 40 and applying for life insurance coverage of less than $100,000. However, the older you are, the less life insurance you can buy without a medical exam. Of course, these figures also depend on your health history and the underwriting guidelines of the insurance company.

A typical medical exam may include a basic physical, blood work, and urine tests. Some insurers also require EKGs and/or treadmill EKGs (stress tests), especially for large life insurance policies. You’ll also have to provide information on your medical history, including the names of doctors you’ve seen, dates you saw them, and any treatment recommended. A nurse or doctor (often an independent contractor) who is paid by the insurance company will normally conduct the exam.

If you have a medical condition, there’s really nothing you can do to hide it. In fact, you shouldn’t try. Insurers have access to an amazing amount of medical information through the Medical Information Bureau, so even if you attempt to obscure the facts, there’s a good chance an insurance company will find the information it needs. In addition, if the insurance company discovers you have withheld information, it will look at everything else much more closely.

There are a number of simple steps you can take to make sure you get the best possible results at your medical exam:

  • Get a good night’s sleep the night before the exam
  • Fast for eight hours before the exam if possible to ensure the most accurate results
  • Don’t smoke for at least one hour before the exam
  • Avoid caffeine for at least one hour before the exam
  • Avoid alcohol for at least eight hours before the exam
  • Don’t engage in strenuous exercise for 24 hours before the exam
  • Limit your consumption of salt and cholesterol for 24 hours before the exam
  • Cancel the exam if you get sick–even a minor infection can distort the results