An umbrella insurance policy is a worldwide liability policy that covers you and your family members over and above your primary insurance policies, including the policies you hold for your automobiles, home, rental properties, and even boats or campers.

Many of my clients believe that only millionaires need this coverage. Unfortunately, this is a gross misconception. Many people can benefit from umbrella policies.

If you are sued and then found liable, and if you do not have enough liability on your primary policies to cover the judgment against you, any assets or property that you own will be put towards the settlement—unless you have an umbrella policy.

Frequently, when I give this simple explanation, I am told, “I do not own anything nor do I have any money in the bank for anyone to take.”

Here are the questions I then ask:

  • Do you have a job?
  • Do you have a retirement account?
  • Do you own a car?
  • Do you own a home, condo, or co-op?
  • Does your spouse have any assets or property?
  • Does your spouse have a job?

At least one of these questions likely has a yes answer.

This means a lien can be put on your salary, disability benefits, 401(k), or any future salary you may earn, or you may be forced to sell any or all of your property or your spouse’s property to pay for the judgment against you.

Additionally, many people forget about legal fees. Sometimes the attorney and investigation fees are more than the final judgment awarded. These fees can exhaust the primary liability limits on your policy very quickly.

If these facts don’t alarm you into calling your agent to discuss purchasing an umbrella policy, let’s examine some examples to make it even clearer:

  • A neighborhood child runs over to your dog sleeping in your yard, startles it, and causes it to bite and seriously injure the nerves in the young child’s hand. The suit is over $5,000,000 because not only did the parents and the child have to endure trauma, but also the child was a very talented pianist with the potential of becoming a star until the accident. You will have to pay for the estimated loss of income, as well as emotional injury, even though the child startled your dog.
  • Your son is away at college with one of the family cars, and he lends the car to one of his friends. The friend gets into a four-car accident; two of cars involved had no insurance and five people are seriously injured, including the friend who had borrowed the car. Did you know that if your child gives permission for someone else to drive your car, it’s the same thing as you giving permission, and therefore you are liable for that driver’s actions as owner of the vehicle? While the driver of your car was not fully at fault, the injuries from the accident cause the lawsuit to come in at $10,000,000. If nothing else, you will need legal defense. These suits can take years to settle, and the defense costs add up very quickly.
  • Someone walks up the stairs to your home only to find out that she has the wrong house. However, when leaving, she trips and falls down your stairs, seriously injuring herself in such a way that she could no longer work. Yes, your homeowners policy will defend and pay the lawsuit against you; however, if that limit is exhausted and there is no umbrella, you will be liable for the rest.

Bear in mind that not every umbrella policy is the same. Does your umbrella policy cover legal fees inside the limit on the policy or outside? Do you sit on a board of directors? Do you own a personal watercraft or ATV? Unless you have underlying coverage, your answers to these questions may mean that your umbrella policy excludes coverage.

Call your insurance agent today to get clarification and more information on this very important coverage so you can protect the assets and property you have worked so hard to earn and grow.

Heidi Petschauer Fox graduated from St. John’s University in Queens, N.Y., in 1983 with a B.S. in management. She joined her late father’s firm, Petschauer Insurance, in 1982, became principal in 1995, and now shares ownership with her partner and cousin, Erwin Petschauer. She received her Certified Insurance Counselor (CIC) designation in 1997. She currently facilitates the professional and creative development of the entire Petschauer team and manages the personal lines and social media departments.