This is the easiest insurance question I’ve ever had. The answer is simple: EVERYBODY needs an umbrella policy. Those with the greatest financial need are obviously those with the greatest assets and/or income to protect. However, even someone who currently has limited assets and income might someday have significant assets and income. If that person is hit with a multi-million-dollar liability claim, just because they currently have inadequate assets or income to meet their legal obligation doesn’t mean they’re off the hook. What if their wages are garnished for the next 20 years? What if they come into an inheritance or, over time, simply accumulate greater wealth? That now becomes the property of the person they have harmed.
Think about a premises exposure. If I’m a multi-millionaire and someone is killed on my premises due to my negligence, I’m in some measure of financial trouble if I don’t have ample insurance to protect my solvency. Contrast that with a real-life example of a tenant in a 16-unit frame apartment building whose negligent inattentiveness to a charcoal grill resulted in the complete fire loss to the building and the loss of all the contents of the other tenants. While it didn’t happen in this claim, what if multiple tenants had been killed? In these contrasting scenarios, who has the greatest need for an umbrella policy? From this perspective, a renter with an HO-4 policy potentially has a greater liability exposure than an owner-occupant with an HO-3 or HO-5 policy.
And there is a moral component. We all have an obligation to protect innocent people from our negligence. The more wealth you have, the easier that is to accomplish without insurance. The less wealth, the greater the need for insurance. Needless to say, there are many people who struggle to make their insurance payments. However, if they own a house or an auto, reasonably adequate insurance is one of the necessary operating costs. And, per dollar of coverage, umbrella policies are one of the greatest values. I own a boat and insure it on a boatowners policy that includes liability coverage. I also cover it on my umbrella. What did it cost to add it to the umbrella? $7 a year. For more than $1M in additional coverage.
Umbrellas cover MANY things not covered by underlying home, auto, boat, or other policies and it covers them incredibly cheaply. That peace of mind has value of its own. If you are an agent, ALWAYS offer and encourage the purchase of an umbrella policy. If you are a consumer, get a quote on an umbrella policy no matter what your financial status. Sell/buy that umbrella policy if at all possible.
Bill Wilson
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Good article. People never think something is going to happen to them and feel that personal liability is just an “extra” to go with the property coverage for their home or apartment. I heard one time that 87% of umbrellas are used because of bad auto accidents. Why do you think people are hesitant to buy umbrella coverage?
Joe, I suspect it’s because it’s hard for them to conceptualize that something really bad could happen to them. Plus, since it isn’t required by anyone, it has to be SOLD and it will invariably require many individuals to increase their already too low auto limits at the same time. It’s a great idea, as is often done with flood insurance, to get customers to sign waivers that an umbrella was offered or, perhaps better, use an exposure/coverage checklist that requires customers to sign and date declinations of coverage that responds to catastrophic claims.
There is an insurance discussion board at http://www.insurance-forums.net. One of the participants says hardly anyone needs an umbrella. His comments and my responses:
Poster: “Sorry world – most people (99%) DO NOT need umbrella’s. It’s just reality.”
Me: There is a moral point to be made for me. If I negligently injure someone and they’re a quadriplegic for the rest of their lives, it’s OK if I say “Nyah, nyah, nyah, nyah, nyah…I don’t have enough in assets or income for any attorney you can find to come after me”? The less you have in assets and income, the MORE you need an umbrella (to the point of affordability) if you have any sense of personal responsibility for your actions. And it’s not just attorneys that will come after you but also carrier subrogation units. State Farm’s subro unit is well known for going after negligent parties to the ends of the earth and the end of time (or close to it).
Poster: “Personal lines is about building a book fast….w/ the least amount of service.”
Me: It’s not about assisting American families in avoiding potentially catastrophic financial loss that could ruin them for years to come?
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Umbrellas, are only of value if the underlying liability limits are correct for the risk and assets you are attempting to protect. lots of talk about umbrellas but money is better spent to increase the underlying CGL that the umbrella goes over. When thats done correctly then you can pull out the umbrella a for sure it wont rain. DWM
Based on these accounts, you definitely need a LARGE umbrella policy if you’re hosting a gender-reveal party:
https://www.washingtonpost.com/nation/2020/09/08/california-gender-reveal-fire/