By Allison Hess
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Don’t get confused by the inclusive name of the “umbrella policy.” Umbrella insurance can’t protect you against every type of storm. So, what’s excluded from an umbrella policy? Let's take a look.
Read on to see what an umbrella policy can do for you— and what it can’t do.
What is an umbrella policy?
Umbrella insurance is often also referred to as “excess liability insurance,” because it’s an additional form of liability coverage.
Umbrella insurance supplements your basic liability policies on your auto, home, or renters insurance. Umbrella insurance is an optional plan, but it usually provides a much higher limit than your standard policy can. It only covers liability, which applies to those cases where you are held legally responsible for another party’s damages.
WHAT’S INCLUDED IN AN UMBRELLA POLICY?
An umbrella insurance policy covers liability. So, if someone gets injured in your home or you get into an accident where you are at fault, the other party could sue you for damages. This is called “liability,” and you would be responsible to pay for any associated property damage, medical bills, or other expenses incurred by the incident (if you are found at-fault).
What does an umbrella policy typically help cover?
Others’ medical bills or expenses for injury treatment
Other party’s funeral costs
Your legal defense costs
Lawsuits involving slander or defamation
Tenant injuries or property damage by the tenant if you’re a landlord
Umbrella coverage usually starts at $1 million in liability protection, which can protect a lot of drivers or homeowners right off the bat. Plus, umbrella policies usually have a lower-cost premium compared to other types of insurance, especially liability insurance.
WHAT’S EXCLUDED FROM AN UMBRELLA INSURANCE POLICY?
You can only purchase umbrella insurance if you already carry auto, homeowners, or other form of insurance. Umbrella is a supplemental policy, not a standalone policy itself.
You also usually have to meet a certain coverage limit on your home or auto insurance before you can add an umbrella on top. For example, you can’t have only $5,000 in homeowners' coverage and then buy an umbrella policy for $1 million. Homeowners’ premiums are usually much higher than umbrella premiums, so the insurance company won’t allow this until you’ve hit their minimum for homeowners.
So, let’s say you carry enough homeowners’ and auto insurance. Umbrella insurance still doesn’t cover everything that a standard policy does. It only applies to liability.
Here’s what umbrella insurance does not include:
Your own injuries
Damage to your own personal belongings
Intentional or criminal acts
Property damage or injuries in certain instances, like using uncovered recreational vehicles or uncovered dog breeds
Others’ injuries or damage that your business is liable for
Basically, umbrella insurance never covers your own costs. It only helps cover expenses if you are sued for damages and are found at-fault.
It also won’t cover anything that is not included in your coverage, like criminal activity or exclusions listed in the policy. For example, if your insurer doesn’t cover your specific dog breed, they would not pay for the liability of a dog bite to another party.
Personal umbrella liability also won’t cover your business and vice versa. You may need a separate business umbrella policy. For example, if you run a daycare out of your home, that would be considered “business” and any liability would be covered under your business insurance, not your homeowners’ policy.
Who needs an umbrella policy?
Umbrella policies aren’t always necessary. If your standard insurance plan for car, home, or other offers sufficient liability coverage, then you don’t need umbrella coverage. But what’s “sufficient liability coverage”?
Imagine that you got into an accident and totaled someone else’s car. They had to go to the hospital. They sue you for the cost of their car damage, their medical expenses, lost time at work, physical therapy, and pain and suffering.
Let’s say these costs come out to $500,000. You only have $300,000 in assets. That means that they could sue you for everything you have plus $200,000.
Or let’s say that you have assets worth $1.2 million. They could sue you for even more in damages, especially pain and suffering, and take all of your savings.
Those who have significant assets are at risk that more will be “taken” from them in a lawsuit. Often, if your assets drastically exceed your homeowners’ liability, an umbrella policy is a good idea.
You’ll also want an umbrella policy if you do anything that increases your personal liability. For example, volunteering, serving on the board of a nonprofit, or coaching your kids’ sports team can increase your risk of getting sued personally (most nonprofits or sports leagues don’t protect their volunteers’ liability). Or if you play in a sports league where you hurt others, if you are a landlord, or you own “risky toys” like pools, trampolines, or dogs. You could even put yourself at risk if you constantly review products and businesses because they could sue you for slander!
If there is a chance someone could sue you for some sort of damages, an umbrella policy is usually a good defense.
Just about anyone could benefit from umbrella insurance. One lawsuit could completely destroy everything you’ve worked for. A small annual fee can help you create peace of mind that you won’t end up losing your home or car—or even end up in debt—due to a lawsuit.
Is umbrella insurance right for me?
If you have any assets you want to protect, umbrella insurance is worth looking into. It usually costs only $150 to $300 per year, and it has a high minimum coverage of at least $1 million. This makes it a great value for the price, offering the most liability coverage per dollar.
Suing is commonplace in our society, and you never know when you could get hit with a lawsuit. It may be wise to consider a cushion and protect yourself from damages just in case.
For all of your insurance coverage needs, call us at the Huttenlocher Group.
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