How Umbrella Insurance Coverage Can Save You

Article 4 of 6 in How to Find the Right Type of Home Insurance

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Appropriately named, umbrella insurance coverage is the protection that you save for a rainy day because it serves as a safety net when the cost of damages exceeds the limits to your home insurance policy. Umbrella coverage is very simple to purchase and can save you from a large claim exhausting your liability limits and your finances.

TIP: Before you finalize your home insurance policy, ask your agent about umbrella insurance coverage. Adding it to your policy may not be expensive, and can be extremely important should a disaster occur.

What Is Umbrella Insurance?

Umbrella insurance coverage provides liability coverage over-and-above what is provided under your homeowner's insurance. This is commonly referred to as second-tier or second layer insurance since umbrella coverage kicks in only after you exhaust your homeowners personal liability coverage in your primary policy. Second-tier policies save money in the long run by adding increased protection, and they have a lower premium because a large majority of incidents will be covered by your first-tier coverage.

TIP: The average homeowner's liability coverage limits are normally $300,000 to $500,000. It is not uncommon today for a claim to exceed your liability limits. Umbrella coverage would step in once you have exhausted your underlying limits.

While you can purchase a personal umbrella rider, this coverage is often sold as a stand-alone policy. Most insurers who offer umbrella coverage require increased liability limits under existing homeowners insurance policies before offering this coverage. This means, when you purchase umbrella insurance coverage the insurance company will ask that you increase your underlying limits on your homeowner's policy from say $300,000 to a minimum coverage of $500,000 in order to maintain your umbrella policy. This is also to give the insurance company a cushion of added liability protection that you must exhaust before they have to pay out more money through the umbrella coverage.

TIP: Adding to your liability limits will increase your premium payments. Take the time to decide whether you need an increased limit before you purchase umbrella coverage.

What Does Umbrella Coverage Provide?

Umbrella insurance coverage provides protection above the lower liability limits of homeowners insurance coverage. You can purchase umbrella policy coverage in increments such as $1 million, $2 million and up to $10 million. This may sound like a lot of money, but again, it is not uncommon to have lawsuits in the millions of dollars. Take a look at some of the items below that are covered by your umbrella policy:

• Personal injury or property damage caused by you, members of your family, or hazards on your property for which you are legally liable. This includes "attractive nuisances" such as swimming pools and trampolines.
  

• Personal liability coverage for occurrences that take place off your premises. For example, if your dog bites a neighbor.
  

• Personal liability coverage for occurrences that you are found to be negligent in causing at a rental property. If you are a landlord, then an umbrella insurance policy can be critical to keep you protected from lawsuits.
  

• Lawyer fees when you have to defend yourself.
  
  

are also some things that an umbrella policy will not cover. Read your policy completely and make sure that you understand your coverage thoroughly. Excluded from coverage are:

• Damages expected or intended by the insured.
  
• Liability arising from certain exotic vehicles, such as aircraft and jet skis. (Snowmobiles and golf carts are usually covered.)
  
• Damages to your own property. (Depending on how these were caused, your standard homeowner policy may cover these.)
  
• Liability arising out of business pursuits.
  
• Liability arising out of employment (doctors, lawyers, pharmacist)
  

Is Umbrella Coverage Right for You?

Determining if an umbrella insurance policy is right for you can only be answered by adding up your liability exposures. If you find that you have potential for high liability exposure because you are, or appear to be, wealthy or you rent out property, you do not want to find yourself overwhelmed by an uncovered liability claim. Here are some questions to ask yourself to determine if umbrella coverage is right for you:

• Are you a landlord? Being a landlord can expose you to potential liability losses such as wrongful eviction or even improperly maintained premises that cause injury. While this may be covered by your primary liability coverage, the additional dollar amount of protection can be invaluable.
  

• Do you have a high net worth, or do you have a profession that is associated with a high net worth? If you are an individual with a high earning profession, this could be a litigation magnet in and of itself. If your negligence causes an injury and the other party finds out you are wealthy or work in a profession associated with wealth, then they may sue for more money.
  

• Do you have a dog that is a little aggressive or has been known to nip? A dog bite will result in a costly lawsuit if you are aware of the dog's aggression.
  

• Do you have a swimming pool or trampoline? A swimming pool or trampoline on your property gives you the added risk of injury or death!
  
  

If you fit any of these categories or if you have other circumstances that could expose you to a lawsuit, then you should consider getting an umbrella coverage policy. If you have any additional questions about your liability exposure, click here to ask an experienced insurance professional.

IMPORTANT! Make sure your umbrella coverage is over and above your underlying limits. For example, if you purchase a $1 million dollar umbrella policy, this coverage should be $1 million above your $300,000 homeowners liability, giving you a total combined coverage of $1,300,000 in liability coverage (as opposed to your underlying limits being included in the $1,000,000 which would give you only a total of $700,000).

Cost of Umbrella Coverage

The cost of an umbrella policy varies depending on the company and your coverage limits, but it is nominal compared to the hundreds of thousands of dollars of increased liability protection you will receive. When calculating the cost of the coverage, insurance companies will take the same steps they do to set premium rates. The company will look at what risks you are exposed to, what your credit score is, and whether or not you have been sued or filed claims in the past. Before you purchase an umbrella policy, make sure you get a quote from your insurance company so you can find an option that works for your budget.

TIP: This cost can also be shaved by a multi policy discount. Most insurance companies will give you a discount for having both your home and umbrella policy with them.

An umbrella insurance policy can provide you with great protection for those risks that may expose you to high claims and lawsuits. To get a free quote on an umbrella policy, click here and visit the Free Advice quote center today!