In 2013 a California driver ran a red light at 50 to 70 mph in a 25 mph zone. He collided with a taxicab carrying two passengers, got out of his car and fled. He was given a three-year prison sentence and $271,000 fine for fleeing the scene of an accident and awarded his victims more than $2.7 million in damages. While an appellate court returned the case to a trial court because of mistakes made in admitting evidence, the final judgment is likely to be more than $2 million.
The news was even worse for a Florida driver. After his car collided with a motorcycle, killing the bike's driver, a jury ordered him to pay the driver's estate $8 million. He had purchased only $100,000 of insurance.
In each of these cases, a personal umbrella policy would have helped the people being sued. A personal umbrella policy picks up where an auto or homeowners insurance policy leaves off to provide extra protection.
Every insurance policy states in its information pages the maximum amount that the insurance company will pay for a loss. These amounts are called "limits" of insurance; insurance buyers usually have several choices for limits, up to the most the company will offer. If the amount of the loss is greater than the amount of insurance, the policyholder is responsible for paying the rest. The driver whose car killed the motorcyclist owed $8 million, or $7.9 million more than he had in insurance.
An umbrella policy takes over once the insurance in your auto policy is used up. Usually, the insurance company will require the auto policy (the "underlying" policy) to have limits at a certain level or higher. This reduces the likelihood that the umbrella will have to cover a claim. Once the underlying policy has paid out their full limits for a loss, the umbrella takes over, paying up to its own limit. The higher the umbrella limits, the more protection the policyholder has. The cost to increase the limits decreases the higher the limits are. For example, the cost of going from $1 million to $2 million is a fraction of the cost for $1 million; the cost of going from $1 million to $5 million may be about the same as for the first $1 million.
Even large amounts of liability insurance are affordable and can save your family from financial ruin. Every family should consider buying as much liability insurance as it can afford. A personal umbrella policy can provide additional liability insurance in the unfortunate event of a serious auto accident that exceeds your auto insurance limits.