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California is one of the most litigious states today and there seems to be no changing that fact anytime in the near future. A personal umbrella policy is one of the best ways to protect your assets.

In the 1970’s, it was commonly thought that only the wealthy people, professionals, or business owners needed this protection. Over the years, this way of thinking has changed. Many of my clients say that “I don’t have anything”. This reminds me of the movie Rocky V where the crooked fight promoter says “hit me and I’ll sue”! Rocky then clobbers this guy and says “sue me for what”? The truth of the matter is that a personal umbrella protects current AND future assets and income. Rocky could have been in big trouble.

I have a niece and a nephew that graduated law school not too long ago and have started their careers as new lawyers at their respective law firms. As newbies, they are working very hard, doing a lot of grunt work, paying their dues, and not making the money that they expect to make when they gain more experience and knowledge. But they will make a very nice living in the future so I strongly recommended that they both carry an umbrella policy on top of their underlying policies to protect future assets and income. They are what I like to call “targets”.

So what does a personal umbrella do?

A personal umbrella is meant to cover catastrophic, large losses. They are not meant to pay out the first dollar of a claim. In other words, they are priced fairly low because they only pay in excess of an underlying policy or they provide broader liability coverage than what is offered on a personal auto or homeowner’s policy. And it is mandatory to have an auto policy and either a homeowner’s policy or personal liability policy with required underlying limits of liability to support the personal umbrella policy.

So even though an umbrella policy offers $1 million to $5 million coverage or more historically for a surprisingly low premium, the liability limits on your auto and home policies must be raised to the minimum amounts required by the umbrella policy. Once these minimum amounts are exhausted in a claim, the umbrella policy would take over to provide the higher limits of liability coverage (and remember, the umbrella policy is a liability policy, it does not pay for your property).

Let’s look at an example. Kim is driving her car through the local neighborhood and texting to a friend that she is almost to her house. Because she was not paying attention, she hits a poor fellow as he is walking through a cross walk. His medical bills come out to be $750,000. The required underlying limit on Kim’s auto insurance policy when injuring one person is $250,000. The umbrella policy pays $500,000 which is the amount in excess of what her auto policy would pay. What would have happened if Kim did not have an umbrella policy? She would be responsible to pay the $500,000. And what if Kim only had a basic state minimum 15/30/5 policy? Her auto insurance company would pay $15,000 and Kim would owe the remaining $735,000.

What happens when your auto policy will not cover a claim for some reason? Let’s say that you are driving your car out of the country and your auto policy does not extend coverage outside of the United States? Most umbrella policies offer worldwide coverage. If the auto policy does not cover a risk but the risk is not excluded by the personal umbrella policy, your umbrella policy would “broaden” your coverage and you would still have coverage. You would only be required to pay a “self-insured retention” or deductible.

What if I let my underlying limits be reduced or I let my auto or homeowner’s policy get cancelled? The umbrella policy would pay out as if you still had the underlying coverage but it would be up to the policyholder to pay for the “gap” in coverage or the underlying amount if there was no underlying policy in force.

A word of warning though: All umbrella policies are not the same. Companies will often tailor some of the coverage to what they are comfortable with offering. Though it looks like an umbrella policy and tastes like an umbrella policy, it may actually be a hybrid policy with minor changes in it that effect certain coverage. That is why it is important to have an agent that can explain the differences between certain policies so that you don’t find out the hard way at the time of a loss.

This article is meant to be an introduction to what a personal umbrella policy is and how it can protect you and your loved ones. This has been a simplified explanation while actual personal umbrella policies are a bit more complicated but that is why you have an agent who can explain and tailor coverage to your needs and give you peace of mind.

In summary, if you have any assets or plan on having any assets in the future, an umbrella policy may offer you the protection that you need.

Give us a call at 760.893.8055 for more information on San Diego Personal Insurance.

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