Q. Both of my cars were totaled by Hurricane Ida. My insurance company wants to cancel my umbrella insurance policy because now I don’t have any cars. I already paid for the policy for the year. Can they do that?
— Disappointed
A. An important part of a good financial plan is risk management using insurance, so it is good that you are thinking about this.
Let’s go over how it works.
An umbrella insurance policy, also known as excess liability coverage, covers you for liability over and above what your underlying insurance such as an auto, boat, and homeowners or renters’ insurance covers, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York and an adjunct professor of personal finance at Montclair State University.
“Liability is a claim resulting from injuries and damage to other people or property because of your fault,” he said. “Umbrella insurance policies are recommended for people with significant net worth and are available at reasonable prices.”
Panambur said most umbrella insurance policies will require you to have a specified amount of coverage in your underlying insurance policies.
He offered this example: One leading insurance company requires you to have $300,000 in bodily injury liability and $100,000 in property damage liability in your auto insurance. They require you to have $300,000 in liability coverage in your home insurance and $100,000 liability coverage in your boat insurance policy if you own a boat. Other insurance companies have similar requirements.
For an umbrella insurance policy to work, you must have underlying insurance coverage, he said.
However, he said, every insurance company is different, and each has its own guidelines.
“Some insurance companies offer you umbrella policies if you only have either homeowners’ or renters’ insurance,” he said. “If your umbrella insurance was canceled because you don’t own a car and don’t have auto insurance, call them and ask if they are willing to write you a policy based on your homeowner’s or renter’s insurance.”
You could also consider getting non-owner’s car insurance, he said, noting that it’s usually cheaper than regular car insurance because it usually does not have collision or comprehensive insurance.
“Alternately, you can shop around to see if a different insurance company is willing to write you an umbrella policy with no car and auto insurance policy,” he said. “If you discontinue your current umbrella insurance policy, you should be able to get a refund for the remaining term of your insurance.”