Having auto insurance and homeowners insurance can be a lifesaver in the event of an accident or other tragedy. It can also help you out in the event you have an accident with your boat, ATV, snowmobile or recreational vehicle – provided you’ve purchased the proper insurance protection. All insurance policies have their coverage and cost limits, however.
What if a claim exceeds your policy’s coverage? What if an accident that isn’t covered by your policy occurs? You could be covered for costs well beyond your original policy with umbrella coverage.
What is Umbrella Coverage?
Umbrella coverage is insurance that is bought to supplement your primary policies. They can also serve as primary insurance for damages and losses not covered by your primary auto or home policies. Umbrella policies essentially enhance your coverage, over and above your primary policies.
If something claim-worthy occurs and an insured party must pay for injuries, death and/or property damage, his or her main insurance policies will pay up to the point of their limits. Anything more than those limits is the responsibility of the insured. An umbrella policy would pay for the excess liability amount, up to the limit of the umbrella policy.
Umbrella insurance is sometimes called “excess insurance”, but that’s not exactly correct, the two aren’t really the same. Excess insurance policies provides the same coverage as the original policy, except they increase the limit of coverage. Umbrella policies actually can provide broader coverage, covering types of damages that the primary policies don’t cover. Examples of these could be false arrest, libel, slander and invasion of privacy.
Umbrella Policies for Your Home
Homeowners policies don’t cover all types of damages. It’s imperative to carefully read the terms of your policy. There are also limits to how much your insurance will pay for each accident.
Most homeowners’ policies afford $100,000 to $300,000 in personal liability coverage. This covers a variety of incidents, such as slip and fall injuries and more. Depending on the limit, your insurance company will pay up to that amount in the event of a covered loss. If the damages, liabilities or lawsuits are higher than your limit, you are responsible for paying the excess amount. Umbrella insurance can increase your coverage to one—million dollars or more, depending on the limits you choose.
Umbrella Policies And Your Car
With auto insurance, umbrella policies work similarly. Umbrella insurance and your auto insurance are particularly useful together, though, due to the frequency of car accidents. Your house is stationary, but each time you drive your car, there is risk for an accident. If you’ve been driving 20 years or more, odds are you’ve had at least one accident, while many homeowners go the same amount of time without ever having to file a claim.
Auto insurance provides coverage for things like bodily injury, uninsured motorists, and underinsured motorists. Coverage limits are usually depicted as as “split limits” or “combined single limit”.
Split limits provide for a certain amount of coverage per person killed or injured. In this example, we’ll say the split is 150/300. A split such as this would pay $150,000 per person in an accident, with a maximum amount of $300,000 total. A, combined single limits of $300,000, on the other hand, would provide up to $300,000 per person affected, with a total cap per accident of $300,000.
Let’s say the insured is involved in a covered accident in which one person dies and he or she is sued for $200,000. With the split limit of 150/300, insurance would cover up to $150,000 per person. But because only one person died, the insurance will only pay $150,000, leaving the insured to pay the additional $50,000. With an umbrella policy, you would be covered for the additional $50,000.
With combined single limit coverage, the policy would pay up to the maximum limit per accident, regardless of how many people are involved. So in the example above, the policy would cover the entire $200,000. However, if the accident involved killed two people and the insured was sued at $250,000 per person, the policy would pay to the $300,000 limit, leaving the $200,000 leftover to be paid on his or her own.
Should You Have Umbrella Insurance?
Of course, the answer to that question is unique to each situation. However, it’s important to keep in mind that there are some things that could increase the likelihood that an umbrella insurance policy is needed. Some of these things could be a dog at home, a pool on the property, a long commute, a rush hour commute, and or you frequently have guests or parties
Umbrella Insurance Requirements
Umbrella coverage is secondary insurance. Because of this, you’ll need to fulfill the underlying insurance requirements before you can purchase an umbrella policy. Insurance requirements will vary, depending on the insurance provider and the individual policy. By sure to review the requirements and the coverage carefully. Pay your premiums promptly, for a lapse in underlying insurance could put the coverage for your umbrella insurance at risk, too.
Those are the important points to know about umbrella insurance. Remember, umbrella coverage not only increases how much will be paid should you need to use homeowners and auto insurance, it can provide the same peace of mind when you’re out having fun on your ATV, RV, boat or other insured vehicles. If you think an umbrella policy sounds right for you, perhaps a conversation with your insurance agent could help you on your way to getting the coverage you need.