The standard insurance policies you have on your home or auto can protect you financially when it comes to many types of accidents. Other policies will cover claims regarding accidents with your boat, snowmobile, ATV or recreational vehicle. Each policy has a limit though, and they’ll only pay out so much.
If the claim exceeds your policy’s limit, you could end up having to pay thousands of dollars out of pocket, putting your financial well-being at risk. Alternatively, you could get extra protection with umbrella insurance and have peace of mind knowing you have extra coverage in case anything should happen.
Umbrella Coverage & Excess Insurance
Umbrella policies increase the coverage of your main insurance policies. If an accident or disaster occurs and you are held liable to pay for someone’s injury, death and/or property damage, your auto or home insurance policies will pay up to its limit. If the claim against you goes beyond the limits of those policies, umbrella coverage steps in to take care of the rest, up to its limit. If you didn’t have umbrella coverage, you would have to pay the excess damages out of your own pocket.
Though umbrella insurance is sometimes called excess insurance, it’s important to point out that these two terms aren’t completely interchangeable. Excess insurance provides that same coverage as your primary policy does, it simply increases the amount of coverage should a covered claim go beyond your primary policy’s limits. However, an umbrella policy can provide coverage for accidents that your primary policy doesn’t cover. Examples of these could be libel, slander, false arrest and more.
Umbrella Policies and Home Insurance
Homeowners policies don’t cover all accidents or disasters. It is of vital importance that you read the limitations of your policy carefully so you know what is excluded. Additionally, your home insurance will only pay so much, even for occurrences that it covers.
Many standard homeowners insurance policies offer either $100,000 or $300,000 in personal liability coverage. These policies typically cover such events as slip and fall injuries, dog bites and other incidents. Your initial policy will likely pay up to the maximum amount of coverage total per accident. If the damage exceeds the maximum however, it would be up to you to pay for the difference. Umbrella policies could increase your liability coverage to one-million dollars or more, depending on the coverage you choose.
Umbrella Policies and Auto Insurance
Auto insurance works much the same way. Not everyone makes a home insurance claim during their lifetime, but some estimates show that drivers make car accident claims nearly every 18-years.
Auto insurance works a bit differently in that the policies are typically offered in “split limits” ($150k/$300k, for example) or “combined single limit” (300CSL, for example). Split limits provide a set amount of coverage per person injured or killed, such as $150,000, and a maximum amount per accident, such as $300,000 in this example. A CSL of $500,000, though, would provide up to $500,000 per person injured or killed, with a cap of $500,000 per accident.
Imagine this: The insured has an accident that kills one person, and he or she is sued for $250,000. With a split limit of 150/300, the auto policy would cover up to $150,000, which leaves the insured responsible for paying the difference $100,000. With an umbrella policy, the additional $100,000 would be paid by insurance. With CSL coverage, since policy would pay up to a total of $300,000 per accident, it would cover the entire $250,000 claim. However, if the insured had killed two people and was sued for $250,000 per person, the CSL policy would pay $300,000 limit, leaving him or her to pay the rest of the $200,000 on their own. An umbrella policy with a $1,000,000 limit would also have covered this claim in its entirety.
Should You Purchase Umbrella Insurance?
Insurance policies ought to be selected based on your personal needs. It may not seem obvious, but there are some circumstances that can increase the chances that you’ll need to use an umbrella policy. To give you an idea, having a dog or a pool on your property raises your risk. Additionally, having a long commute or a commute that occurs at rush hour are two other potential risks.
Requirements to Buy Umbrella Insurance
Umbrella coverage is supplemental insurance, so you must carry primary insurance on your home, car, or other vehicle before you can purchase an umbrella policy. It’s not enough just to have a policy, either, you have to have enough initial coverage to buy an umbrella coverage. Requirements may be different, depending on the umbrella policy and the insurance company who is offering it. Be sure to read your policy carefully.
Those are the basics of what you need to know about of umbrella coverage. It’s not just for home and auto coverage either, an umbrella policy generally covers all underlying policies such as those for your ATVs, RVs, boats and other similar vehicles. If you think an umbrella policy might be right for you, please contact your agent to help you get the coverage you need.