We all have auto insurance, but the limits only go so high. If you are the sort of person who has substantial assets - and it doesn't take much to get to the level of 'substantial' these days - you probably have an Umbrella policy. Your Umbrella gives added limits over and above your auto insurance (and other personal insurance policies) that are sufficient to protect you in case you become financially liable for a large sum.
But is it a given that your auto insurance is set up to match up with your Umbrella? Over the years, having seen a LOT of auto insurance policies cross our desks, the answer is no. This article will describe the most common problem we see, why its a problem and how to solve it.
Whats An Umbrella (Quick and Dirty)?
Lets say you have an auto insurance policy that has Liability limits of $100,000 for Each Person and $300,000 for Each Accident (these limits are very common). Now lets say you are in a bad accident where you are at fault. The other car's occupants are injured, and their medical bills exceed $300,000. Your Umbrella is there to pay for those costs in excess of your $300,000 auto policy limit. Without it, you have to come up with the money personally, somewhere and some way.
With an Umbrella in place the story has a reasonably happy ending. It picks up paying where your auto policy leaves off. Umbrella limits usually are in the multiple millions of dollars so its much less likely you will run out of insurance. Further, Umbrellas are not limited to paying out over top of just an auto insurance policy. They cover a wide variety of forms of personal liability.
So Whats The Problem?
Above we said "it picks up paying where your auto policy leaves off." and there's the rub. If the Umbrella is meant to start paying out only when the loss reaches $300,001 and up, your auto insurance policy had better have a $300,000 limit so it comes 'up' to the bottom of the Umbrella.
What if you lower your auto insurance limits to $50,000/$100,000? If your Umbrella requires you to maintain $100,000/$300,000 limits, you personally get to pay for losses from $100,001 to $300,000 before the Umbrella kicks in. Needless to say thats very bad.
How Can This Happen?
Typically we see this kind of mismatch on Uninsured Motorists coverage. Its not uncommon to see Uninsured Motorists coverage written to low levels; oftentimes because the consumer thinks "I don't drive this car so much so I need less coverage." UM is also a coverage that is unpopular to insurance companies thanks to its propensity to generate big losses. For whatever reason, lower limits are often written on this coverage, and doing so is never to the consumer's benefit if disaster strikes.
How Do I Find the Problem?
As usual, our advice is to read your policy. In this case, read the Underlying Coverages section of your Umbrella. It will lay out in simple terms the limits of underlying coverage that are required for you to have no gaps. It will also list any other requirements. For example its common to require that underlying coverage must be written by an insurance company with an "A" rating or better (making it doubly important to keep your underlying insurance with a well-rated company).
How Do I Fix It?
This should be an easy one: Call your insurance agent and get them to change your limits so you match up to your Umbrella policy. There should be no problem with this and if there is, make sure the agent stays on the ball to get the problem fixed as soon as possible. Consider yourself lucky you discovered this when you did... before you need the coverage.