Vegas Voice 11-18

How an Umbrella
Liability Policy Works:
By: Jim Valkenburg / Insurance Insight
The above is just an example. You can fill
in your own numbers, but the procedure is
the same. Here’s how it works:
You are in an auto accident (or have a homeowners claim) and are
sued for one million dollars. You are deemed responsible (liable) and
lose the lawsuit.
Now your insurance kicks in. Since you have a $1,000 deductible
on your auto policy (or homeowners) you are responsible for the first
$1,000. Your policy then covers the remaining $299,000 since you have
$300,000 in liability coverage.
Then since your umbrella policy deductible of $300,000 has now
been met, your umbrella policy covers the remaining $700,000. So for
a $1,000,000 lawsuit, you wind up paying $1,000 out of pocket and
your insurance covers the rest.
There are at least two lessons to be learned here. First, the liability
limits on your Auto or Homeowners policy need to be high because
Umbrella policies typically require high limits.
Second, and this is not shown in the diagram. The cost of a one
million dollar umbrella is much less than you might imagine.
Typically, around $300 a year. Why?
Because underlying liability insurance limits of $300,000 or more
cover the majority of claims. But, are you willing to risk the chance
of losing everything you own for a few hundred dollars of protection?
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Jim Valkenburg is a retired military officer and insurance executive.
He and his wife owned and operated their own insurance agency for
over 16 years. His primary purpose is to give out real information
that can be used to make intelligent insurance decisions.
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