The coverage under an umbrella policy can be triggered when you're sued for more than your primary liability limits. It also can be triggered when you're sued for something covered only by your umbrella and not by your primary policies (in other words, the gaps). When the latter happens, the umbrella "steps down" and defends and protects you as if it were primary coverage, subject only to a modest deductible, called a self-insured retention (SIR) - typically, $250 or $500.
In this part, I fill you in on how you might need to change your primary insurance to meet umbrella requirements and give you tips for avoiding gaps between your primary and umbrella coverage.
One reason that umbrella policies are so inexpensive is that they generally don't cover small lawsuits. An umbrella policy requires that your automobile, homeowner's, and other personal policy liability limits (also known as primary liability limits) meet certain minimum requirements. Depending on the insura1nce company, the minimums vary from about $100,000 to $500,000. To get an Umbrella, you must first raise your primary liability limits to these minimums and guarantee that you'll always maintain them. If you violate this guarantee and fail to meet these minimum requirements, you'll be personally liable for the difference between what you've guaranteed your coverages will be and what they actually are.
For example, say that the minimum auto liability coverage needed to obtain the umbrella that you have is $500,000, but you've allowed your coverage to slip to $250,000. If you're found liable for $700,000 in damages, the umbrella policy still kicks in after the first $500,000 has been paid - $250,000 by your auto insurance company, and $250,000 by you. (You promised to maintain $500,000 of coverage. You broke that promise by carrying only $250,000. You owe out of your own pocket the $250,000 shortfall.)
Insurance companies offering umbrella policies are not consistent in the amount of primary liability coverage that they require. Talk to your agent to be sure that your primary coverage always meets your umbrella requirements.
Because an umbrella policy requires you to maintain specific primary liability insurance limits, you must be aware of very serious dangers:
Don't let any primary policy cancel for nonpayment. If you do and you're sued, you'll have to pay the loss out of your own pocket, a loss that otherwise would have been covered. Pay attention to all notices that come from your umbrella insurer. They often require you to raise one or more of your primary coverage limits as a condition of keeping the umbrella. If you don't see or don't read the notice and don't raise your limits as required, you'll be personally responsible for the gap.
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