Sometimes When It Rains... It Pours
WHAT IS AN “UMBRELLA” INSURANCE POLICY?
Umbrella Policies, sometimes also referred to as “Excess” Policies protect the policy owner above and beyond coverage typically provided by primary liability policies, such as Auto or Homeowners insurance. In Washington, Homeowners Insurance Policy Companies often sell Umbrella Policies which protect the policy holder against catastrophic loss. What many people don’t realize is that Umbrella Policies also typically provide excess protection above and beyond the policy holder’s Underinsured Motorist (UIM) coverage as well.
Together with Personal Injury Protection (PIP) and Underinsured Motorist (UIM) coverage, Umbrella Policies are some of the cheapest and best insurance protection available. In this day of spiraling medical costs, a court judgment which exceeds the limits of one’s primary policies could destroy personal assets which took a lifetime to accumulate.
Some might argue that the likelihood of a disaster large enough to trigger the need for excess insurance is actually very small. That is true. However, what can happen often has a way of actually happening. When that disaster occurs, the consequences can be devastating.
For examples, consider the following scenarios:
• A young couple drives on a freeway in Washington. They are hit head-on by another car traveling the wrong way in their lane. The uninsured driver of the other car is killed. Each of the couple suffers catastrophic injuries. Neither can return to work for months. The young couple undergoes months of specialized medical care and rehabilitation. They had $300,000 in Underinsured Motorist (UIM) coverage. That coverage was exhausted in the first 30 days following the collision. Fortunately, they had purchased an Umbrella Policy along with their Homeowners Insurance. That policy provided excess coverage of $1 million ($1M) and beyond their Underinsured Motorist (UIM) coverage. With that coverage cushion they were able to pay their medical bills, replace lost income, receive general damage awards, and avoid personal bankruptcy.
• A property owner has a water feature (a small pond) on his property. A neighbor child chases her dog into his yard. She is attracted to the pond and falls in. Within moments she becomes hypoxic when her brain is deprived of adequate oxygen supply. She survives the near-drowning event, but suffers permanent brain damage. The Homeowner’s Liability Policy with policy limits of $250,000 was quickly exhausted. Fortunately for these Homeowners, as well as for the child, they had purchased an Umbrella Policy along with their Homeowner’s Insurance. That policy provided excess coverage of $1 million ($1M) above and beyond their Homeowners Insurance Policy. That money was used to provide for the child’s medical expenses and long term care needs. It also protected the Homeowners against losing their home to satisfy a potential judgment against them.
Each of us needs to assess our own levels of risk tolerance. Part of that assessment should include a realistic understanding of ways to reduce that risk.