An umbrella policy, also called a Personal Umbrella Policy or PUP, is a relatively inexpensive policy that will give you another level of liability coverage over your primary automobile, homeowners, renter’s, or other specialty policy (such as motorcycle, ATV or boat). It is called an Umbrella because it covers all perils: if the loss or peril is covered by a primary insurance policy, then it will be covered by the Umbrella. This PUP kicks in only if or when the liability limits of the primary policy have been exhausted.
For example, perhaps your teenage driver wants to see how fast your new SUV will go. Egged on by his friends riding with him, he finds out that he can get the SUV up to 110 mph before it rolls off the road. Injuries to the passengers are catastrophic and worth more than the total $300,000 in bodily injury liability limits on your automobile policy. The coverage and defense that an Umbrella policy provides will then be activated, if you have one. Otherwise, you may face exposure of your personal assets or even in the extreme, consider the possibility of filing bankruptcy.
PUP limits start with a minimum of one million, but some companies, such as GEICO, currently sell up to ten million in coverage. A PUP of one million may cost less than $200 for a year. This type of policy is very inexpensive when compared to automobile or homeowners policies because the likelihood that an accident or loss will be catastrophic enough to expose the policy is low. Depending upon which state you live in, you will need to have at least $100,000 or more in liability coverage on the underlying policies to qualify for the PUP.
If a claim is large enough to exhaust your primary auto or other insurance policy, any decent attorney representing the claimant or Plaintiff will request and be entitled to information on your assets before accepting those policy limits as full and final settlement and allowing their client to sign a settlement release. If you refuse to share that information willingly, or if the attorney has already done an asset check on you and believes that you are hiding something, a Lawsuit will surely follow.
A PUP is extra protection if you have any assets. Don’t think that you’ll be left alone just because times are tough and you think you have nothing. Assets are not always in the form of a large chunk of cash sitting in a savings account. If you are fortunate enough to owe less on your home than it is worth or even outright own your home, that is a huge asset that a claimant can go after. If you have a profit sharing fund or a retirement fund, a small college savings account or even an IRA, a Plaintiff can refuse to settle until you get your hands on some cash to satisfy their claim; they won’t care about whether or not you have to pay penalties. We have seen that happen. Wage garnishments are also common. People aren’t so forgiving when it comes to money these days.
If you have assets and can afford an extra couple hundred a year to buy an Umbrella policy but just cannot decide whether to go ahead and get it or not, consider this: in our years handling cases in litigation, we have never heard a Defendant say “Gee, I wish I had less insurance to protect me”.
Other articles related to this topic:
What To Do if You are Sued as the Result of an Accident.
Why Bother With Purchasing an Insurance Policy?
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