Umbrella Policies – A Different Way To Protect Your Home

Umbrella insurance is a type of liability insurance that provides additional coverage beyond the limits of the insured’s homeowners, auto, or watercraft insurance. It offers protection when the policyholder is held responsible for a claim that exceeds the coverage limits of their primary insurance policies. Here’s a breakdown of how umbrella insurance works for today’s high risk world:

1. Extra Coverage Over Base Policies: Umbrella insurance kicks in after the underlying policy limits are exhausted. For instance, if you have an auto insurance policy with a liability limit of $300,000 and a lawsuit against you results in a $500,000 judgment, your umbrella policy would cover the remaining $200,000 (assuming your umbrella coverage includes this amount or more).
2. Broader Coverage: In addition to covering excess liability claims on your existing policies, umbrella insurance often provides coverage for claims that may be excluded by primary policies, such as false arrest, libel, slander, and liability coverage on rental units you own.
3. Cost-Effective High Limits: Umbrella insurance typically offers a high coverage limit (starting at $1 million and going up in million-dollar increments), providing substantial protection against large claims or lawsuits. Despite the high limits, the premiums are relatively low compared to the amount of coverage provided because it only pays once the primary policy’s limits are exhausted.
4. Global Coverage: Most umbrella policies provide coverage no matter where the incident occurs, which is particularly beneficial if you travel outside the country.
5. Deductibles (Self-Insured Retention): Some umbrella policies include a self-insured retention (SIR), which is similar to a deductible. The SIR is the amount the policyholder is responsible for paying before the umbrella policy begins to pay. This feature is more common in situations where the umbrella policy is covering a loss that is not covered by any underlying policy.
6. Requirement of Underlying Insurance: To purchase umbrella insurance, insurers usually require you to have a certain level of liability coverage on your primary policies (like auto or homeowners). If a claim exceeds your primary policy’s limits, your umbrella policy will then cover the additional amount, up to the limit of the umbrella policy.

It’s important to understand that umbrella insurance covers only liability claims against you or covered members of your household, not your own personal injuries or property damage. Consulting with an insurance agent or a financial advisor can provide personalized information on how an umbrella policy can fit into your overall risk management strategy. Having an umbrella is often the difference between having a paid claim and a home that can be auctioned off to recoup losses.