The Case for Umbrella Insurance

Two Types of Umbrella Insurance:

There are essentially two types of umbrella insurance, Business and Personal.  To be perfectly clear they cover completely separate things.  As the names would suggest a Commercial Umbrella covers your business liability arising out of business operations.  A personal umbrella covers no such thing.

A Personal Umbrella, also occasionally known as PUP, would cover your personal liability and sits over Autos, Homes, Vacation Homes, Rentals, Farm Land, Four wheelers, RVs, Motorcycles, Comprehensive Personal Liability policies, and other personal items – read no business coverage.

A business owner should probably be in possession of both a personal umbrella AND a business umbrella to cover the two different types of exposures and protect his or her assets properly.  You may wish to contact your agent or broker for more information.

“this article will mainly discuss personal umbrella policies”

This article will mainly discuss Personal Umbrella Policies, also shortened to PUP, their use, need, and considerations.  I will answer some simple questions regarding them without getting too far into the insurance and legal jargon.  Should you have other questions, answers, considerations, please do not hesitate to reach out to myself or your licenses insurance agent or broker.

Why doesn’t personal umbrella insurance cover business liability?
Personal Umbrella Insurance does not cover business exposures for a full variety of reasons, my opinion, is that it is just too complicated to ask the personal umbrella underwriters to review and understand the business exposures.  The other main reason is to lower the overall cost to all the non business owners.  A personal umbrella policy is relativity inexpensive in comparison to home insurance or automobile insurance.

Who needs personal umbrella insurance?
In the San Francisco Bay Area and other areas where homes are pretty pricey, the simple answer is many people do.   As discussed, umbrella policies sit over auto policies (and home policies, among others).  Automobile policies have typically had a maximum of five hundred thousand dollars in liability insurance.   Back when $500,000 was a lot of liability insurance, the need for umbrellas was low.  Unfortunately, now a days, $500,000 in liability coverage does not protect you from much of the exposures out there.  If you own a home in the Sonoma, Contra Costa, Alameda, San Francisco, Marin, San Mateo Counties, you may easily have a net worth that exceeds that number ($500K) just from the equity in your home.  You are likely to hear folks tell you that it hard for someone to get a judgment against you using the equity from your homestead.  This may or may not be true – that I cannot say- I am not a lawyer. But that seems like a thin excuse not to buy a $300 insurance policy.

In regards to liability, “things have changed”

One of the other reasons that are growing the needs for them is the increasing litigation of our society.  For many of us that grew up in the 1960s, 1970s, and 1980s, can you remember if your neighbor’s dog bit a friend, the owner of the dog would usually apologize and possibly supply a bit of iodine to help out.  Can you imagine that happening today?  Things have (unfortunately) changed.

Should you try and match your net worth with your total liability coverage?
Matching your total net worth (All assets less liabilities) is a simple and clear way of estimating how much liability insurance you may need, but it is really overly simplistic.   My personal way of looking at it, is that Younger people  should probably buy slightly up from that point and older people slightly less.

I also advise clients to use the “liability count” method.   The liability count is more an assessment of the most obvious occurrences you may possibly have claims against.   The higher the count, the higher umbrella amount. Discuss the finer points of this with your insurance broker and possibly your lawyer.  Needless to say if there is something out there that you are concerned about being sued over, you may want to start off by taking mitigation steps to minimize a potential problem in the future and then consider adding more liability insurance through a PAP or otherwise.   In other words, getting a pool cover might be the best immediate step.  Also, The reader should be aware of the so called absolute liability side of the equation.

What is absolute liability?

You should read a nuanced definition of Absolute liability at About.com.    From the customers standpoint, what you should know about absolute liability is that there are certain things that are so dangerous that you may be held responsible without the need of being found negligent – Think owning a Tiger or having an unfenced pool. Source:

Should I wait to buy Umbrella Insurance when my home and auto insurance becomes due?

Waiting to procure personal umbrella insurance when your home and or auto insurance comes up for renewal can make sense in certain situations.  However, if can also be problematic.  Umbrella Insurance is certainly a bit like life insurance (level term life is my favorite) you are unlikely to need the umbrella policy, but when you need it, you are really going to need it.   Therefore if you wait to obtain an umbrella insurance policy you are/ may be leaving yourself exposed for a period of time until you get it.  If you have sizable assets it may make more sense to just drop what you are doing right now and buy it.

Should I buy my umbrella insurance through my home and auto insurer?

Sure as long as it’s an A rated company and you feel confident that the agent or broker you are speaking with understands your risks.  If they run you a quote without first discussing what your underlying liabilities AND concerns are… I would caution you to beware.   Umbrella insurance policies can follow similar forms and coverages but the exact wording and definitions can vary quite a bit.  There are very few insurance brokers out there that have a complete grasp of the subject in the personal lines arena.   Many insurance agents only sell umbrella insurance from one company.

Do you travel internationally? Do you rent vehicles?, Do you use motorized/mechanized play equipment that may or may not have an underlying insurance policy? Are you a famous person, do you sit on a nonprofit board? Are you a Board member or a C Level Executive at a significant company? Do you own a rental that has bars on the windows?  Do you own open land free of major structures?  Have you had past liability insurance claims? Are your assets held in Trusts, LLCs, Corporations, etc.?  These are some of the significant questions your Insurance Broker or Agent will need to discuss with you.

What to look for with Umbrella Insurance:

What should we look for when purchasing umbrella insurance?

When looking for umbrella insurance, you want to find an A rated carrier.  For whatever reason AM Best is the company that seems most prevalent in rating the Insurance Industry.  If you like to play things slightly more on the safe side, or needing a large umbrella amount, you may also want to look for an A+ or even and A++ carriers.  It is my belief that the carrier rating is almost more important with the umbrella than with any other personal property line out there (home, auto, etc.) especially if we are talking about a larger umbrella amount, say three to five million US dollars.  It is one thing to assume your home insurance company can handle a $500,000 insurance loss, but a $5,000,000 insurance loss may be too much of an assumption.  You can check carrier ratings yourself at AM Best or other rating agencies.

Fly with your insurance broker

What is the difference between Umbrella Insurance and Excess Liability insurance, are they the exact same?

Excess liability and Umbrella liability are technically very similar but not exactly the same.  It is really beyond the scope of this article to explain the differences to the non insurance person.   Needless to say that if your insurance broker or agent is not aware of the difference, you may need to speak with someone else.

I have been told that my carrier will only write as high as $5,000,000 in umbrella insurance and I need more, what should I do?

If your insurance provider will only write you a five million dollar policy and you would like more, you have two options.  Option One would be to find a new carrier that will write you a full $10,000,000 or so policy.  Option two would be to find a carrier willing to write an overlaying policy over that five millions dollar umbrella – an umbrella over the umbrella, technically it would be an excess line.

How many umbrella companies can you write with?

Marindependent Insurance Services LLC can broker policies with several stand-alone insurance companies as well as dozens of same carrier polices.  Unlike many insurance agents we can literally shop the best value and best coverage depending on your circumstance.

With all my insurance blog posts I like to remind people that they should always consult a licensed insurance broker or agent in their state at all times when they are considering purchasing insurance products including umbrella and excess liability policies.

Get a Quote for Umbrella Insurance 

Scott W Johnson- California Insurance License 0H11625

Marindependent Insurance Services LLC- California Insurance License 0K10734

Independent Broker Agent

Umbrella – Auto – Home – Small Business – Term Life

Please see our entire disclosures.