April 13, 2012 12:00 am
By Tim Grant / Pittsburgh Post-Gazette
Chances are you won't be sued for an automobile crash or an accident at your home that costs more than your liability insurance policy is willing to pay. But there is a type of insurance that can guarantee you won't be wiped out financially if that should happen.
Umbrella insurance policies, which offer additional liability insurance for claims exceeding your existing automobile or homeowner's insurance policies, are most commonly bought by wealthy individuals with substantial assets to protect.
But not-so-wealthy people also can benefit from the extra coverage if they own a home or condominium with a pool or trampoline, if they own a dog -- of any kind -- or if they have teenage drivers.
"If you own a home or condominium, it's definitely worth the time to look into getting one of these policies," said Nick Cummings, an insurance agent at Harrington Insurance Agency in Brockton, Mass. "Most companies that offer homeowners and auto insurance offer umbrellas, and umbrellas are fairly inexpensive."
Because a personal umbrella policy goes into effect after the underlying coverage is exhausted, there are certain limits that usually must be met in order to purchase the extra coverage. Most companies want policyholders to have at least $250,000 in liability insurance on an auto policy and $300,000 in liability insurance on a homeowners policy before authorizing an umbrella liability policy for $1 million in additional coverage.
The Pennsylvania Department of Insurance does not maintain statistics on the number of personal liability polices written in the state. Residents who carry umbrella insurance would be a subset of the auto and homeowners insurance market and the state has no data on those markets either.
Randy Rohrbaugh, deputy director of the insurance department, said residents need to analyze their personal assets to decide how much insurance they need and if an umbrella insurance policy could suit them.
"Umbrella insurance is usually bought by people who have significant wealth that needs to be protected," Mr. Rohrbaugh said. "If you don't have significant wealth, the odds of you being sued for damages beyond your wealth is unlikely. Even in the case of having a judgment against you, it's like squeezing blood out of a turnip."
Umbrella insurance is sold in $1 million increments and costs on average between $150 to $300 a year for the first $1 million in additional coverage. The next million will typically cost about $75 annually and about $50 for every million after that.
Every insurance company has its own restrictions and requirements, and there can be wide variations between companies. Mr. Cummings said some may not want to write personal liability umbrella policies for public figures, politicians, police officers and, in some cases, even leaders of civic organizations.
"They could be sued for slander," Mr. Cummings said, giving an example of the risks public figures present. "Insurance companies do not want someone to sue and go after the umbrella policy. In any kind of civil litigation if the policyholder is found guilty, there could be a judgment against the company that issues the umbrella policy and the person with the policy.
"Insurance companies want to know if there is a higher chance of the umbrella policy being paid out," he said. "Any insurance company wants to know the risk they are taking."
With auto and homeowners policies, the insurance agent who writes the policy has binding authority. That is not the case with umbrella policies. The completed application must be submitted to the company for approval. With limits that can go as high as $20 million or more, insurance companies want to have the final authority on whether to assume the risk.
Dave Phillips, a spokesman for State Farm Insurance Co. in Concordville, Delaware County, said in an increasingly litigious society where judgments of several thousands or millions are being awarded by juries, umbrella insurance policies have a place in just about every family or individual's financial plan.
"People used to think those individuals with a ton of assets or money were the ones who should have personal liability umbrella policies," Mr. Phillips said. "But because of how circumstances have evolved even a typical family getting into a two-vehicle auto accident with multiple passengers could be faced with a staggering liability."
If negligence is proven, the liability could fall back to the homeowner or car owner, Mr. Phillips said.
"The same holds true with children drivers. The parent could inherit a liability," he said, adding that. "Also the damages could exceed the limits on a homeowners policy if a contractor is hurt on the property or there is a slip and fall from a guest at the home.
"We hear more scenarios in the media of the cost of an accident exceeding a person's liability coverage and folks are starting to realize their personal assets are at risk."
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