FAQ: Do I Need a New Jersey Umbrella Policy?

Do I need an umbrella policy in New Jersey?

I’m considering putting in a pool next summer which I’ve heard increases my risk for being sued. Do I need a New Jersey umbrella policy?

An umbrella policy is often thought of as an extra layer of protection in our lawsuit-happy society. You can be sued for any reason, and even if a lawsuit is unfounded, you still have to defend yourself. If you’re forced to pay a financial settlement to someone who has been injured because of you or a family member, your financial well-being could be destroyed. 

Umbrella insurance can offer the financial lifeline you need if you’re faced with a lawsuit. It offers extra liability insurance (the insurance coverage in your home and auto insurance that covers property damage and injuries that you cause) if the limits on your home and auto insurance are exhausted from a large lawsuit. 

But does everyone need an umbrella policy? It’s true that certain lifestyle factors or activities that you pursue can increase the likelihood of you being the target of a lawsuit. For example, you might be more likely to be sued if you:

• Own a large home
• Own a rental property
• Have a trampoline, pool, or hot tub
• Host large parties
• Have a teenage driver
• Own a dog

Anyone with significant assets or an obvious “attractive nuisance” (e.g., the pool) should talk to their independent insurance agent about the need for an umbrella policy. 

But remember, anyone can be sued for any reason, and million dollar awards in personal injury cases are not uncommon. If you have auto insurance with a $350,000 bodily injury liability limit and you caused a car accident that resulted in a serious injury, how would you pay? 

When will I need an umbrella policy in New Jersey?

A New Jersey umbrella policy offers excess liability coverage that kicks in when the limits of an underlying policy — including homeowners insurance, renters insurance, condominium insurance, boat insurance, or auto insurance — have been exhausted. 

Here are some examples of where an umbrella policy might be invaluable: 

• You cause a car accident that results in serious injuries for the other driver. The other driver is hospitalized, resulting in hundreds of thousands of dollars in medical bills. What’s more, the driver sues you for lost wages and pain and suffering. Your auto insurance bodily injury liability coverage is limited to $350,000, but the injured party takes you to court and is awarded a $1 million financial payout. You have a $2 million personal umbrella policy that kicks in and pays the remainder of your expenses after the limits of your auto insurance policy have been exhausted.
• A neighbor child wanders into your swimming pool unattended. The child dies after a lengthy hospital stay. The parents sue you for medical bills, and pain and suffering. Your home insurance liability coverage is limited to $500,000, but the parents are awarded $2 million. After the $500,000 limit is reached, your $2 million personal umbrella policy kicks in to cover the rest of the settlement in addition to your legal fees and other costs related to the lawsuit.

What does an umbrella policy cover in New Jersey ? 

Umbrella policies offer “follow form coverage.” This means that the umbrella policy typically covers what they underlying policy does. What’s more, an umbrella policy may offer expanded coverage including covering you worldwide. So if you cause a car accident while driving abroad, your New Jersey auto insurance policy might not cover you, but your umbrella policy would. 

Umbrella insurance might also cover a few circumstances that the underlying policy does not, such as claims for libel, slander, and false imprisonment. 

Keep in mind that you must have a certain level of underlying home and auto insurance in order to purchase an umbrella policy. These requirements vary depending on the insurance company, but typical minimum underlying insurance requirements are: 

• Auto insurance: 
  • Bodily injury liability coverage of $250,000 per person/$500,000 per accident
  • Property damage liability coverage of $100,000 per accident
• Homeowners insurance:
  • Personal liability coverage of $500,000

Some umbrella insurance providers require you to have your auto and homeowners insurance with them before they will issue you an umbrella policy. An independent insurance agent in New Jersey can answer all of your umbrella insurance questions, and can help you decide if purchasing one is right for you.