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Umbrella Insurance Policies: What Are They And Should You Have One?

If it’s raining outside and you have a raincoat with a hood on, that’s pretty good.  It will keep your clothing dry for the most part.  Your pants and shoes might get wet and your face might get a little wet.  If you want to stay drier, add an umbrella for more protection.  That’s what an umbrella policy does for you, as well.  It provides that additional layer of protection above and beyond the limits of liability covered under both your auto and homeowners’ insurance policies. 

An umbrella policy protects you and others covered against the financial burdens of a catastrophic claim, lawsuit or judgment by:
•    Providing expanded liability coverage over and above your primary liability protection
•    Increasing the amount of coverage beyond that of your auto insurance and homeowners’/renters’ insurance

The myths about umbrella coverage

•    It is just for the rich.
•    It is too complicated to coordinate with your existing insurance.
•    The premiums are too expensive.

All of these myths are incorrect. Umbrella liability is relatively affordable, can be easily coordinated with your existing insurance policies and by no means is it just for the well to do. High coverage limits such as those provided by an umbrella policy, can be very important if you have significant assets to protect. (A home, a business, etc.)  But your assets may be modest in size and need similar protection.  It can be less expensive than merely raising the limits on each of your individual policies separately, and can sometimes be issued in higher amounts than your auto or homeowners’ insurance company is willing to provide.  You will still need auto and homeowners’ or renters’ coverage, as insurance companies require certain minimum levels of underlying coverage before they will consider issuing an umbrella policy.

Assume you have an automobile liability insurance policy providing $100,000 /$300,000 in coverage – the first figure representing the maximum liability to one person injured and the second figure, the maximum liability for all persons injured. Your 17-year old son is at fault for an accident and seriously injures someone – a few days of hospitalization and some surgery can easily eat up that $100,000 limit. An umbrella policy pays for any liability you incur above that $100,000 limit up to the limits of your umbrella coverage. Without umbrella coverage, you may be personally responsible for covering the injured person’s medical bills over and above your policy limits. An umbrella policy provides you with an additional layer of protection that would pay those added amounts, up to the limit of the umbrella coverage.  And it is less expensive than you might think.

Generally speaking, anyone with over $100,000 in assets may want to consider purchasing umbrella coverage. It is usually not expensive as it is triggered only after primary levels of insurance have been exhausted – therefore the insurance company views the risk of it being utilized as far lower, knowing that the primary insurance company will also be handling nearly all of the legal work if there is a claim.  Do shop around for the best rates.

Some examples of where umbrella coverage often comes into play:
•    An auto accident in which you are sued under your auto insurance policy.
•    Your neighbor slips and falls on your property, and you are sued under your homeowners’ or renters’ insurance.
•    A natural disaster in which another person's property is damaged by your tree crashing down on their vehicle or home.

Stand-alone umbrella policies

If umbrella coverage is for you, check with your insurance carrier and see if they offer it at a reasonable price.  If you cannot get a good deal on umbrella coverage from your current insurance company, it is important to know that many insurers offer "stand-alone" umbrella policies where the insurance company that issues the umbrella policy doesn’t require you to also insure your home and car with the same insurance company. You’ll still need that basic underlying policy even if it is with another carrier, and the Umbrella limits will go on top of those. So if, for example, you own real estate or autos located in various states, this type of policy can insure them all and you do not have to change your current insurance companies.


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