Umbrella Insurance-What Is It, Do You Need It and How Can It Assist You?

Umbrella InsuranceDefining umbrella insurance

Umbrella insurance is simply a secondary form of liability insurance covering your personal liability.  Umbrella insurance provides liability protection against lawsuits and claims that may be brought against you that exceed the underlying policy limits.

A personal umbrella insurance policy comes into play when your underlying (or base) policy liability limit is exhausted. It provides protection over and above the limits on your car insurance, condo or homeowners insurance, watercraft and other personal insurance coverage.

For example, if a homeowners insurance policy provides $500,000 of personal liability coverage & that limit is exhausted (due to a trip & fall on your property), the umbrella coverage will “kick in” once the $500,000 limit has been reached.  Umbrella policies are usually written in denominations of millions–$1,000,000-$10,000,000.

Is liability insurance needed when you have an umbrella liability insurance policy?

An umbrella insurance policy is a secondary type of insurance which means there must be an underlying or primary policy that must first be applied on a claim before an umbrella liability insurance policy kicks in.

For instance, in case of a loss, a home insurance policy gives protection against the primary liability. When the maximum amount on the homeowner personal liability coverage has been exhausted, the umbrella insurance comes into effect.

What is covered by an umbrella insurance policy?

An umbrella insurance policy provides coverage against:

  • Lawsuits because of injury or property damage
  • Costs related to legal defense in case you are sued due to injury to other people or damages to their property.

Am I required to have umbrella insurance?

Umbrella InsuranceNo, however, nowadays lawsuits have become commonplace and huge amounts are being awarded more than ever before. There is a limit on liability for motor vehicle, watercraft and homeowners’ insurance policies.

Liability insurance is the part of an auto or homeowners’ policy that caters to expenses like an injured individual’s: medical expenses, rehabilitation treatment and loss of wages because of negligence by the guilty party

The liability part of an insurance policy also provides coverage for a legal defense representative if negligence by the person who is at fault was to be taken to court. Once the medical expenses for the injured party and the legal fees for the negligent party have been added up, the standard liability in a person’s auto or homeowners policy is usually not sufficient.

Nearly all states have financial responsibility legislation that hold drivers liable for property damage and bodily injury arising from car accidents and the culpable driver may be sued for the damage.

Personal assets of the guilty driver may be seized because of a lawsuit. There are also similar laws for watercraft and home owners.

In case you are at fault when an unfortunate accident occurs, do your current policies offer sufficient liability insurance to cover the costs of negligence? Because it is hard to predict the amount of money that a judge might award the injured party, umbrella insurance is not only for the well-off people anymore, but a necessary protection for all policyholders.

What is the cost of excess liability or umbrella insurance?

Personal liability umbrella insurance coverage provides you with extra liability protection at minimal cost, making it an excellent value.  Subject to the amount of umbrella liability coverage you choose to buy, it may cost as little as $100 annually for one million dollars insurance coverage. Extra liability insurance is affordable, particularly when it is compared to the value of insurance coverage that you will receive. Basically, you are paying between $150 to $200 for $1 million worth of protection.

This coverage is an affordable way of protecting your assets or financial future.  A $1,000,000 umbrella policy costs about $200 per million of coverage, per year (with 1 home & 1 car).  As you increase the limit of an umbrella policy, the cost per million goes down.

Here’s a few examples:

Umbrella Insurance Policy LimitCost Per Year
$1,000,000$150
$2,000,000$280
$5,000,000$475

*Based on 1 home & 1 car, with proper underlying limits & a clean driving record

How much umbrella coverage do I require?

Now that you are aware that umbrella liability insurance is affordable, you will want to consider your personal situation when determining the amount of umbrella insurance that you want to obtain.

There are three things to ask yourself about your risk and umbrella liability

  • How much are my assets worth?
  • What is my net worth?
  • What risks do I expect to face?
  • Can I afford an attorney to defend me?

Which people could benefit from buying umbrella insurance?

Individuals with established assets that they wish to safeguard can potentially lose considerable amounts of money in a court case.

You can lose any assets you have accumulated in a case if you got sued, including all your savings and investments. Everybody is a at risk, whether you are well-off, or you own no assets.

We live in a litigious society where everything is fair game, and this includes your investments and savings and if you have no assets, probably your future.

Why do you need to purchase umbrella insurance coverage if you do not own any assets or you have no money?

Although you may be starting off in life or you do not own any established assets, do not assume that a court will not award compensation to a third party if you are found liable for damages.

If you do not have any assets, you could be obliged to pay the awarded damages using your future earnings. In case you are student pursuing your degree or you anticipate being promoted and finally attain a high paying job, your future income could be targeted.

What amount of coverage is provided by an umbrella insurance policy?

You choose how much coverage you want to have with your umbrella insurance policy. The amount underwritten differs from one insurance company to the next and they can give coverage for millions of dollars or only one million dollars. It depends on the budget you are working with. Furthermore, some insurance companies may double or triple the amount of coverage from a million dollars to two or three million without increasing the cost of coverage. It is advisable to get quotes for several umbrella insurance limits before deciding.

Which conditions accompany an umbrella policy?

For an umbrella policy to begin paying out coverages, an underlying or primary policy must exist and must have exhausted the limit on payments.

For instance, renters, condo’s and homeowners’ policies will provide the primary liability. Motor vehicles have different liability requirements according to the state. The minimum coverage amounts set by states may not always be enough to meet the minimum basic requirements of the umbrella policy. You need to ensure that the underlying policy carries sufficient liability for your umbrella policy to take effect. Think about raising your liability limits on the underlying policy first and then including the umbrella policy to complement the extra coverage you require. This approach could also save you some money.

An umbrella insurance policy needs a minimum primary insurance

Insurance companies will establish the umbrella policy underwriting requirements. The policy wording will precisely explain the minimum liability amount needed to be eligible for the umbrella policy.

Umbrella policy restrictions

Several insurance companies will insist that you insure all your assets with them before they provide you with an umbrella coverage policy. They could include the umbrella insurance as an endorsement to your current policy. Other insurers can offer you umbrella insurance as a stand-alone policy. You certainly have options when you are seeking an umbrella policy that suits your needs.

Having more assets means you have a bigger need to protect yourself. Consequently, you may want to talk to at a specialized insurer for instance a high-value insurance company such as ACE (previously known as CHUBB) who could even add umbrella or excess liability in their policy in the manner of an endorsement plus numerous other benefits.

What information is required when obtaining excess liability or umbrella insurance?

The common questions that you will be asked by your insurance agent when getting an umbrella policy might include:

  • A list of your properties globally and the company that has insured them
  • The liability limits on your insured properties
  • A list of all your boats, cars and recreational vehicles and the liability limits on their insurance policies.
  • If you are a member of a non-profit or board of directors

The application for umbrella liability insurance is trying to build a complete picture of your properties and their insured value to ensure you are receiving the correct type of coverage and in case you make a claim on the umbrella insurance, they have the information required to assist you. They require to assess your needs to protect you properly.

By | 2018-08-03T10:17:36+00:00 July 27th, 2018|News|0 Comments