Umbrella Liability: The Insurance Policy Everyone Should Have

Cheri Franklin CFP, AIF, CRPC | Clarity Capital Advisors |



What would happen if you were in a car accident deemed to be your fault and the damages exceeded the liability limit on your auto policy? What if your houseguest accidentally injured himself and the costs exceeded the liability limit on your homeowners policy? Rest assured the answer is an unpleasant one that every rational person would try to avoid. Except for retirement accounts and personal residences, most assets are accessible to creditors who are awarded a judgment against you, and they can even garnish future wages. Filing for bankruptcy not only destroys your ability to obtain credit but it adversely affects your employment prospects as well.

So, what’s a mother to do? Same as on a rainy day, get an umbrella! The personal liability umbrella policy (PLUP) begins where auto and homeowners end. Once the liability limits of those coverages are reached, the PLUP is activated and will pay up to its own limit (usually $1 to $2 million). To be clear, PLUPs are not just for high net worth people. Even those with a net worth below $1 million still have a great deal to lose.

One very important caveat is that a PLUP does not cover liability resulting from professional or business activities. A separate policy is needed for that.

If you do not have a PLUP and would like to get one, a good place to start is with your provider for auto or homeowners insurance.