Liability insurance protects one against third-party claims of negligence due to personal injury or property damage caused by one are one’s family members. Homeowners insurance, auto insurance, secondary home insurance, boat, motorcycle and RV insurance all include a primary limit of coverage, but often the maximum coverage available on a primary basis is not enough to protect one fully which can subject one to additional financially catastrophic out-of-pocket expenses should the lawsuit go beyond the limits insured for in one’s policy.
Being underinsured at the time of a loss leaves one’s assets exposed to attachment until a judgement is satisfied. Your insurance carrier is only obligated to provide for your defense up to the limit of liability insurance shown in your policy, and for any amount sought above that limit, you will need to pay for those defense expenses out-of-pocket, and should you be found negligent and legally liability, you will need to pay out of your own assets the difference between your insurance company paying out their limit of liability and the settlement amount with the case grinding on and the legal bills piling up, subjecting your assets to liens and attachments, wage garnishments and possible foreclosure of assets to be liquidated to pay the injured party or parties in order to make them financially whole.
An umbrella liability policy extends the liability limits over the limits in your underlying insurance policies and provides for higher limits of protection against liability lawsuits. It’s called an umbrella because it goes over all of your underlying insurance policies, including your homeowner’s policy, your auto policy and anything else that you own personally that requires liability insurance coverage. It will include coverage for personal injury liability which covers alleged slander, defamation of character and libel, which are offenses that have become all too real with the onset and proliferation of unfiltered social media, and might also offer protection if your serve as an unpaid volunteer board member of a nonprofit organization.
Every umbrella liability requires a minimum underlying limit from which it will pick up the excess over that limit, also known as the “attachment point” where the umbrella coverage “attaches” to the primary policy, so it is important that the underlying limit is correct, including for motorcycles, boats, etc. The key to right amount of coverage is that you want enough limit to exceed your net asset values in order to keep your assets from being attached by lien and potentially partially or completely liquidated to satisfy a judgment against you. Having enough coverage assure that your assets are free and clear from any lawsuit settlement, including paying for the purchase of bonds to stand in place of your assets should you have a judgment against you. Most importantly the annual premiums for an umbrella policy is often less than it would be for one hour’s worth of legal bills
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