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A beginner’s guide to umbrella insurance


When the unexpected happens, your insurance policies are meant to act as a safety net to keep your wallet from feeling the brunt of life’s mistakes.

Unfortunately, insurance policies do have their limits. In those cases, an umbrella insurance policy can meet you where you are and provide extra liability coverage in addition to your underlying policies so that you’re fully covered.

What is umbrella insurance?

Umbrella insurance is an extra layer of liability protection that is not covered by your existing one home, carboat, p renters’ insurance policies. It also steps in to cover libel and slander claims.

Say you’re involved in a car accident and the other driver is injured. If their medical bills total $300,000 and exceed the $250,000 that your auto insurance policy covers, your umbrella insurance policy will kick in to cover the difference, plus any legal fees you may incur.

If you already have separate insurance policies to protect yourself and your assets, umbrella insurance may seem excessive. But for those with a higher net worth or assets whose values ​​exceed their coverage limits—experts say it’s worth considering.

“A good way to determine if you should add an umbrella policy is to determine if your current assets have a value that is higher than your auto or home limits,” says Mary Boyd, president and CEO at Plymouth Rock Home Assurance. “However, given the current legal trends, that scope has expanded even further and just about anyone with current assets or future earnings potential should consider buying an umbrella policy. It is especially important if you are at a higher risk for lawsuits, for example if you own a dog or a pool, and families with teenage drivers.”

What does umbrella insurance cover?

Umbrella insurance provides coverage for expensive claims and lawsuits after all of your other policies have kicked in. It’s important to remember that this kind of insurance isn’t meant to cover what your underlying policies already cover, it’s meant to cover damages to others that you could be liable for.

“While most home, auto, and watercraft policies come with some liability protection, just one lawsuit could quickly reach the limits of your policy,” says Boyd.

A typical umbrella insurance policy covers:

  • Bodily injury: Personal umbrella insurance policies will cover costs resulting from injuries sustained by another person for which you are at fault. This happens after you’ve reached the cap on your underlying policies. Examples of this might include your dog biting someone who comes to visit your home, or if you cause injury to another person by crashing into their car.
  • Damages to others’ property: Your umbrella insurance policy will step in to cover any damage you’ve caused to another person’s property, such as their home or car.
  • Landlord liability: If you own a rental property, an umbrella policy may help cover any costs resulting from bodily injuries or damage to a tenant’s property.
  • Certain legal costs: Umbrella insurance will cover legal defense costs or attorneys’ fees if you’re sued for causing personal injury or damage to others. It may also cover your legal costs if you’re sued for slander or libel.
  • Incidents outside of the country: Many umbrella policies offer worldwide coverage, meaning that it doesn’t matter where the accident or damages take place—your policy will still cover you.

Umbrella insurance doesn’t cover:

  • Injuries to yourself or damages to your own property: Umbrella insurance is meant to give you extra liability coverage, it won’t include anything that’s already covered by your underlying policy.
  • Liability assumed under contract: If you sign a contract and assume liability on behalf of someone else, your umbrella insurance won’t cover you. You may, however, be able to purchase separate contractual liability insurance.
  • Business losses: Your personal umbrella insurance policy does not cover any business losses or damages. A commercial umbrella insurance policy, however, may cover business-related medical expenses, attorney fees, and any damages or legal costs brought on by a company lawsuit.

How much does umbrella insurance cost?

On average, umbrella insurance premiums cost between $200 to $300 per year, according to Brian Greenberg, CEO and founder at Insurist. However, the exact premium you pay for your umbrella insurance can be higher or lower depending on a few key drivers:

  • Coverage amount: Umbrella policy coverage limits usually stop between $1 million and $5 million. Your premium will range depending on the amount of coverage you choose, as well as your existing coverage. “If you’re looking to increase your liability limits, that might require a higher deductible or higher premium,” says Greenberg.
  • Net worth: If your current insurance policies do not cover the total value of your assets, umbrella insurance is one way to help cover that difference. Depending on how high your net worth is, you may need more coverage and could pay a higher premium.
  • Your location: Insurance policy rates vary from state to state. If you live in a state where coverage limits for your underlying policies are lower, you may opt for a higher-coverage umbrella insurance policy which will likely come with a higher premium.

“It’s important when comparing policies to make note of how much liability protection it offers,” says Boyd. “Anything above your insurance limits becomes your responsibility, which could put your assets like retirement savings, summer homes and college funds at risk. In cases where you don’t have enough assets to cover the damages for which you’re responsible, your income could be tarnished.”

How to buy umbrella insurance

Once you’ve run through your existing policies and reviewed your potential liabilities to determine if umbrella insurance is right for you, you’ll need to find a reputable insurer who sells policies. Start by speaking with your current insurer(s), they may offer an umbrella insurance policy in addition to your existing policies. In fact, they may require that your umbrella policy be purchased through them. Pro tip: some insurers offer multi-policy discounts if you already have an existing policy through them.

If your insurer does not offer umbrella insurance, make sure to shop around and request quotes from a few different insurers to see who is offering the best coverage at the lowest premium.

You can fill out an application on the phone or in-person with an agent, as well as online through your insurer’s website. The application will typically ask you to submit personal information about yourself, your income, assets, and more. Once you’ve submitted your application, you’ll have the option to select the coverage amount you want.

“There are several different types of umbrella policies available—some will cover certain expenses up front while others require payment after an accident occurs,” says Greenberg. “It’s important to decide which option would work best for your needs before purchasing any kind of coverage.”


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