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Shield Your Assets with an Umbrella Policy

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Your basic auto insurance and homeowners insurance could serve you well in the face of an accident or disaster. It can also protect you financially if you have an accident with your boat, snowmobile, ATV or RV. However, all insurance policies have a limit to their coverage.

Then you hear about a big accident settlement in the news and you wonder, “Would my insurance cover that?” Well, if you have umbrella coverage in addition to your home and auto insurance, you just might be safe. Without umbrella coverage, though, you could be on the hook for paying for damages in excess of your policy limits. Depending on the accident and the claim, you could be scrambling to pay thousands of dollars out of pocket. An umbrella insurance policy could be a lifesaver should you end up with a big claim against you.

What is Umbrella Coverage?

Umbrella coverage is a separate insurance policy purchased in order to kick in when the limits to your primary insurance policy limits are exhausted. Depending on the circumstances, they can also serve as primary insurance for damages and losses not covered by your standard auto or home policies. Umbrella policies basically augment your coverage, over and above your main insurance policies.

If something bad happens and an insured party must pay for injuries, death and/or property damage, the primary insurance will pay up to their policy limits. Anything more than those limits rests on the shoulders of the insured to pay themselves. An umbrella policy would shield the insured from having to pay excess damages, up to the limit of the umbrella coverage.

Umbrella insurance is sometimes also referred “excess insurance”, but these terms shouldn’t really be used interchangeably. Excess insurance policies don’t expand the coverage of the original policy; they simply expand the limits of the coverage. Umbrella policies, on the other hand, actually can deliver more coverage, covering losses that the primary policies would not have. Examples of these could be false arrest, libel, slander and invasion of privacy.

Umbrella Policies for the Home

Contrary to what one would like to believe, homeowners’ policies don’t cover all accidents. The ones they cover or exclude are usually clearly defined. It’s essential that you carefully read the terms of each policy before making a purchase.  There are also limits to how much your insurance will pay for each accident. Most standard policies offer $100,000 to $300,000 in personal liability coverage. This covers a variety of accidents and incidents, up to those amounts. Your insurance company will pay up to the maximum amount of the claim in the event of a covered occurrence. If the liabilities or lawsuits escalate beyond that predefined limit, you could be the one paying the difference. However, umbrella insurance can increase your coverage limit to one-million dollars or more, subject to which umbrella policy you choose.

Umbrella Policies for the Car

The basics of how umbrella policies work for autos is the same as it is for homes, though there are some slight differences in how some policies reach their limits. Coverage limits on car insurance are usually depicted as “split limits” or “combined single limits” (CSL).  Split limits provide for a certain amount of coverage per person killed or injured, such as a 150/300 would pay up to $150,000 per person per accident, with a maximum payout of $300,000 per accident. A CSL, on the other hand, would provide up to $300,000 per person per accident, with a total cap per accident of $300,000.

For example, let’s imagine that an insured driver is involved in a covered accident in which one person unfortunately loses his or her life. The family sues for $200,000. With the split limit of 150/300, insurance would cover up to $150,000 of the claim. The additional $50,000 would be up to the insured, because $150,000 is the “per person” limit per accident. That $50,000 would be covered by the umbrella policy if you had one in place, otherwise you would likely have to pay it yourself. If that same driver had a CSL policy with a $300,000 limit, it would have covered entire $200,000. If two people would have died, however, putting the claim up to $400,000, an umbrella policy would have kicked in and covered that additional $100,000 of excess damages.

It is worth noting that umbrella insurance and auto insurance are particularly useful together, simply because car accidents happen more often than you might think. Every time a driver gets into a vehicle, there is a risk of accident. If you’ve been driving 20 years longer, statistics say that you’ve likely had at least one accident, while many homeowners go similar spans of time without having to file a liability claim.

Should You Buy Umbrella Coverage?

The answer to the question above depends on your situation, budget and coverage needs. There are some hazards that may be on your property right now, which might make you sway towards wanting umbrella insurance. For example, you’re more likely to have a high-dollar claim if you have a dog or a pool on the property. Additionally, you’re more likely to make a high-value auto claim if you have a long commute or drive through rush hour traffic.

Umbrella Insurance Requirements

Because umbrella coverage is secondary insurance, you’ll have to fulfill the underlying insurance requirements before you purchase umbrella coverage. Insurance requirements vary from company to company and from policy to policy. Review your policy carefully so you’re familiar with the requirements and the coverage.

Now you have a good idea of how umbrella insurance can shield your assets. Keep in mind, umbrella coverage isn’t just for your home or auto, it can also be for your ATV, RV, boat and other insurable vehicles.  If you think an umbrella policy sounds right for you, have a talk with your insurance agent. They can help you get the coverage you need.