Personal Insurance Glossary of Terms

In most cases, the umbrella follows the auto policy. The best case scenario is to have all of your coverage with the same insurance company. This way, when you alert the underlying carrier of a claim, your umbrella is automatically put on notice. There are scenarios where your umbrella will be with a different carrier. In those cases, you’ll need to report the claim separately to your umbrella carrier.

“How much umbrella coverage do I need?”

We get this question all the time. There is really no good answer. A personal umbrella is there as the last line of defense between you and a law suit. Ideally you’d want your Liability Limit to be equal to the most you’ll ever be sued for. Since our crystal ball is broken, you’ll have to exercise some judgement. The more assets that you have to protect, the more valuable an umbrella is.

Not all umbrellas are created equal. All excess policies will provide liability in excess of your underlying policies (Home, Auto, etc..). A true umbrella will also drop down to become the primary policy for certain exposures. For instance, if you don’t own a boat, then you would not have boat insurance. If, however, you rent a boat, a true umbrella would become a boat liability policy while you rented it. An excess liability policy would not.

Personal Injury Liability Insurance covers you for lawsuits filed over issues like defamation, libel, slander, false arrest, unlawful imprisonment and malicious prosecution. These types of claims are more and more prevalant since the dawn of social media. For landlords, privacy concerns and ulawful entry can also be included.

Some umbrellas will only provide this coverage if it’s already on your underlying home, renters, condo or other policies.

When your umbrella policy pays a claim that is not covered by your underlying policies (such as home or auto), then you are responsible for paying the Self-Insured Retention. It is typically a small amount that acts as a deductible. Your umbrella policy then pays for the loss amount exceeding your retention.

Your umbrella can either include defense costs, or defense costs may be outside the limit. Defense costs inside the limit may sound like a good thing. But in reality defense costs outside the limit is a much better option.

If your defense costs are inside the limit, that means the money to pay your lawyer is coming from your umbrella limit.  So if the defense costs a lot, then it could use up the entire umbrella.  If defense is outside the liability limit, that means that while you are being defended in court, your liability limit remains intact and the full amount is available if you lose the case.