Published: March 2015
A personal umbrella policy (PUP) helps add liability protection beyond what's covered by your existing auto, renters, and homeowners policies. A PUP can help put an "extra layer of liability protection," between you and financial disaster, according to the Insurance Information Institute. But in spite of the term "umbrella," a PUP does not cover everything, and it's critical to understand the limits.
Your personal property. While a PUP is designed to help cover expenses if you are held responsible for damages to someone else's property, that coverage typically won't apply if you cause damage to your own property. Suppose your bathtub overflows, destroying drywall in your home. Your own damages would be excluded from coverage. But if the overflow destroys the property of your downstairs neighbor, your PUP may cover the damages caused by your negligence, preventing you from paying out of pocket for the loss. It's important to note, though, that any PUP benefits would kick in only after the underlying policy limits have been exhausted.
Business losses. Losses related to the operation of your business or damage to your business property would generally not be covered by a personal umbrella policy, says the American Institute of Certified Public Accountants. The exclusion applies even if the business is home-based. For example, if you earn money providing day care in your home, any liabilities that result from that arrangement would likely not be covered.
PUPs typically don't cover other business-related liabilities such as a malpractice lawsuit, or losses in connection with your paid position as an officer or member of a governing board of a for-profit organization.
Criminal or intentional actions. A PUP usually won't protect you from the consequences of your own intentionally harmful or illegal behavior; for example, restitution you owe if you are convicted of a crime or damages you intended to cause through your actions.
Contracts. PUPs typically won't protect you from any liability that arises in connection with an oral or written contract you've entered. So if you find yourself facing a lawsuit from someone you've hired to work on your home, for example, it's unlikely that your PUP would provide protection.
Whether you already have a personal umbrella policy or you're considering purchasing one, it's important to understand what kind of protection it might offer. Your agent can answer questions about your specific coverage.