Homeowners insurance and automobile insurance protect you in the event of most accidents and catastrophes. Insurance policies for boats, jet skis, snowmobiles, ATVs and RVs can protect you, too. These policies have clearly defined limits though, and will only pay up to that amount.
In the event a claim against you exceeds your insurance coverage, you could be responsible for paying the difference. Its very unlikely you’d be in a position to cover the rest without putting yourself in financial straits. An umbrella insurance policy could offer peace of mind should the unthinkable occur.
What are Umbrella Coverage and Excess Insurance?
Umbrella policies and excess liability insurance both enhance your primary auto and home insurance policies. In most cases, umbrella policies can also act as primary insurance to cover damages that aren’t’ covered by your auto or home policies. Both types of policies essentially expand the coverage of your main policies.
When an accident occurs and you are held responsible to pay for costs associated with injury, death and/or property damage, your main auto or home insurance policies will pay up to their limits, but anything more would be your responsibility. An umbrella policy would cover the excess damages not covered by your main policy, up to your umbrella policy’s higher limit.
The phrase “excess insurance” is sometimes used interchangeably with umbrella insurance, but they aren’t quite the same. Excess insurance has the same coverage as your primary policy, it simply increases the limit of coverage for losses. Umbrella coverage, on the other hand, may have a higher limit and cover incidences that your primary policy doesn’t. Examples of things umbrella insurance might cover could be libel, slander, invasion of privacy, false arrest and more.
Homeowners Insurance Umbrella Coverage
Typical homeowners policies don’t cover every situations that could occur. It is vital to read your policy thoroughly to determine what isn’t covered. Furthermore, there are limits to how much a policy will pay, even when it comes to covered damages.
Many homeowners policies provide between $100,000 and $300,000 in personal liability coverage. These policies may cover incidents that could include dog bites, slip and fall injuries and others. The insurance policy will pay for up to the maximum total covered amount per accident. If the cost of the damages surpasses the maximum, you may have to pay for anything above and beyond your policy’s stated limit. Umbrella policies could increase your coverage up to one-million dollars or more.
Auto Insurance Umbrella Coverage
Auto insurance is similar when it comes to how it works with umbrella coverage. In fact, due to the frequency of car accidents, umbrella insurance and auto insurance are a perfect match. Not all homeowners need to file insurance liability claims, but some estimates show that drivers make auto accident claims nearly every 18 years on average.
Auto insurance covers a variety of damages beyond injury and property damage. Coverage amounts for auto insurance are typically offered in “split limits” ($250k/$500k is common, for example) or “combined single limit” ($300k is typical).
Split limits offer coverage for a specific amount per person injured or worse, such as $250,000 indicated in the example above. The maximum amount per accident, as you might guess for this example, is $500,000. Further, it the policy were instead a combined single limit for up to $300,000, it would provide up to that amount per person, with a total cap for each incident at $300,000.
Picture this scenario: The insured individual is involved in an accident that causes someone’s death, and as a result, he or she is sued by the victim’s family for $350,000. With a split limit of 250/500, the primary policy would cover up to $250,000 per person, offering a total of $500,000 per accident. But because there is only one victim, the policy would pay a maximum of $250,000. As a result, the insured would be responsible for paying the $100,000 difference. Having an umbrella policy would cover the excess liability in this case.
With combined single limit (CSL) coverage, the policy would pay up to $300,000 total per accident. Along the lines of the example above, a CSL policy would have paid the total $250,000 claim. If two people had died and the insured was sued for $250.000 for each victim, the policy would pay $300,000 and that would be it, leaving the policy holder to pay the additional $200,000 on his or her own. An umbrella policy here would have also paid for the difference, up to the policy’s limit.
Umbrella Coverage Right for You?
You should have insurance coverage based on your needs. It could be that you’d be best served to have umbrella coverage. Here are some situations that could potentially boost the probability of a big claim:
- You have a dog
- There is a pool on your property
- You have a long commute or drive a lot
- You often drive during rush hour
- You have frequent house guests or gatherings in your home
Umbrella Coverage Requirements
Umbrella coverage is supplemental, which means you buy it in addition to a policy you already have. In order to buy it, you first have to carry the required underlying insurance. These requirements vary depending on the insurance company and the individual policy. Review policy requirements carefully.
Umbrella coverage isn’t a requirement, but it certainly could help you out in a bind, should the unthinkable occur. It’s worth noting that umbrella coverage doesn’t just supplement auto and home insurance. It can also expand and enhance insurance policies for ATVs, RVs, boats and more. If you think you need more coverage, please contact your agent today to discuss if an umbrella policy is right for you.