Welcome to Episode 20 of the Life and Finances Together Podcast! In today’s episode, Roger welcomes back the Boer Insurance Twins, Brian & Derek, of Boer Insurance Group to the show to discuss umbrella insurance coverage.
In today’s increasingly litigious society, standard home and auto insurance may not be enough to protect you from large lawsuits or unexpected claims. That’s where umbrella insurance comes in. Often overlooked, umbrella insurance serves as an additional layer of liability protection covering gaps left by primary insurance policies.
We’ll be discussing what umbrella insurance is, what it covers, and real-life examples of when it proves invaluable – all through the insights shared by the Boers.
Umbrella insurance is described as “excess liability insurance” that sits over your auto and home insurance. It's designed to kick in when your primary policy coverage limits are exhausted. For example, if your auto policy covers $250,000 but you're sued for $750,000 after an accident, umbrella insurance would cover the remaining $500,000.
"It’s meant to sit over the top of your home and auto policy and offer an extra layer of protection."
While many people feel secure with their existing insurance coverage, they often underestimate how quickly those limits can be surpassed. This is particularly true in the case of lawsuits involving bodily injury, loss of income, or emotional distress.
“A typical auto policy might have $250,000 of liability. That’s great, but if you hurt someone seriously, that might not be nearly enough.”
Umbrella insurance adds extra liability coverage that can come into play if a major judgment exceeds your regular policy limits. This coverage only kicks in after your main policy has paid out its limit—and at that point, it can make a big difference in covering additional costs.
“If you have $300,000 in auto liability and the judgment is $900,000, umbrella insurance would pick up the extra $600,000.”
Umbrella policies cover more than you might think:
- Bodily injury
- Property damage
- Legal defense costs
- Personal liability situations like libel, slander, and defamation
Importantly, it protects against lawsuits stemming from incidents that might not be covered by your auto or homeowners’ policies.
Here are a few real-life examples of lawsuits the Boers have seen throughout their years as insurance agents.
One example involved a boat accident. “The pilot of the boat hit a wave, and that person landed weird on that seat, and they fractured their spine. And now they’re paralyzed. I would never have thought that would generate such a large lawsuit—but that’s what happens.”
Another case involved a contractor falling off a ladder while working on a homeowner’s property. Although the contractor was assumed to be bonded and insured, a lawsuit was still filed against the homeowner. “You hired the contractor. They’re on their own. But they get hurt on your property? We are a sue-happy society.”
In another situation, someone pulled out in front of a motorcyclist who had to lay the bike down to avoid a crash. “They had bad road rash. They might never ride again because of the emotional distress from that incident… that’s going to be a big lawsuit.”
These are all cases where you wouldn’t necessarily expect a large claim, but the combination of injury, potential income loss, and emotional damage led to substantial legal action.
Beyond lost income, umbrella insurance also covers losses related to quality of life. In one example, a 35-year-old accountant making $100,000 a year is severely injured.
“That family is losing out on 25 years of income. But maybe he’s paralyzed or blind, too. You cannot restore their physical abilities… you’re going to compensate them with money.”
These types of claims often include:
- Pain and suffering
- Loss of quality of life
- Emotional trauma
- Legal defense fees
One of the most common misconceptions about homeowners’ insurance and umbrella policies is who is responsible for whom? Homeowners often assume that if they hire licensed and insured contractors, they’re off the hook for any incidents.
The reality is that even if a contractor is licensed, bonded, and insured or has workers’ comp, there can still be lawsuits if there’s any perceived negligence on the homeowner’s part. For instance, if a contractor leans on a gutter that’s weakened by a rusted screw and falls, that’s potentially on you. “If there’s the smallest little thing that was a hazard on your property… there’s some potential liability.”
Unsurprisingly, younger accident victims tend to generate higher lawsuit values. “You project income and all these goals and the dreams and everything else they have.”
A 20-year-old who is permanently disabled has more decades of lost income and life experience ahead of them than someone older. That plays into the court’s compensation calculations.
Another often overlooked benefit of umbrella insurance is coverage for legal defense costs. Even if you're not found liable, defending a lawsuit can cost tens or hundreds of thousands of dollars.
“If an attorney gets in their ear and really wants to push it, there’s a lot of financial incentive for them to file that lawsuit. Even if you’re not truly at fault, you may still need to pay legal defense fees, which umbrella insurance can cover."
While umbrella policies are often marketed to high-net-worth individuals, they can still benefit a much wider audience.
People who should consider an umbrella policy include:
- Homeowners
- Parents of teen drivers
- Dog owners
- Landlords
- Recreational vehicle owners
It’s not just current assets that are at risk; future income and even retirement savings can be vulnerable in the face of a major lawsuit.
Perhaps the most surprising part of umbrella insurance is how affordable it is. Annual premiums for $1 million in coverage typically range from $150 to $400, with each additional million costing less. However, premium costs are seeing an increase due to the litigious nature of our society.
“You’re buying a lot of peace of mind for a few hundred bucks a year. Compared to the risk, it’s a no-brainer for most people.”
Selecting and coordinating umbrella insurance with your other policies can be complex. We can’t stress the importance of working with a licensed agent:
“You don’t want to DIY this. Work with someone who knows what to look for, understands your situation, and can place you with the right company.”
Umbrella insurance isn’t only for people with a lot of wealth – it’s also a way to add extra protection when the unexpected happens, which can be important for keeping things on track for you and your family.
As Roger concluded:
“It isn’t until you do that work that you’re truly bringing life and finances together.”
Thanks so much for reading along and learning about umbrella insurance with us today. For questions about our financial services or finances in general, please send us an email, give us a call, and of course, please like and subscribe to our podcast and stay tuned for our next episode.
*Elements of this transcript contain AI created content
