Unforeseen events happen in life that can lead to property damage or injury to someone. If you are held liable, the fallout can ruin your financial health. “But I have insurance!” you say. That’s good. But is it enough insurance? What are the limits of your policy? You could be in trouble if your liability exceeds your coverage. This is where an umbrella policy comes in.
What does an Umbrella Policy Cover?
Bodily Injury Liability
Bodily injury liability covers the injuries sustained by another person because of the accident. Examples include the cost of medical bills and liability claims due to damages caused by:
- A serious auto accident where you are at fault
- Your dog to others (not all breeds qualify)
- A guest in your home or on your property falls
Property Damage Liability
Property damage liability covers the cost of damage or loss to another person’s tangible property, for example, the cost associated with damage to vehicles and other property in an auto accident where you are at fault.
Keep in mind it will NOT cover the following:
- Your injuries
- Damage to your personal property
- An intentional or criminal action that causes damage to someone else
Do you own a rental unit? An umbrella policy can help protect you from the liability you may face as a landlord.
Examples include the cost of liability claims due to:
- Someone tripping on a sidewalk crack on your rental property and suing you for damages
- Your tenant’s dog (not all breeds qualify) biting someone who holds you responsible
Other Liability Protections
You will have coverage if you’re sued for:
- Slander: An injurious SPOKEN statement
- Libel: A detrimental WRITTEN statement
- False arrest, detention, or imprisonment
- Malicious prosecution
- Shock and mental anguish
Again, keep in mind that an umbrella policy generally does NOT provide coverage for:
- A criminal or intentional action causing damage to someone else
- The liability you assume under a contract
How an Umbrella Policy Enhances Your Insurance Portfolio
An umbrella liability policy Takes effect when other forms of insurance, such as auto or homeowners, have been exhausted. Because of this, most insurers require an applicant to have a minimum of $250,000 of liability insurance on an auto insurance policy and about $300,000 of liability on a homeowners insurance policy before selling a one-million-dollar umbrella insurance policy.
If a million dollars in insurance sounds like a lot, consider how much you could be liable for if you paralyze someone in an accident. To determine appropriate levels of coverage, consider the total value of the assets you may wish to protect, the perceived scope of the risks you may face, and the impact of a potential loss of future income.
Who Needs an Umbrella Policy?
People who should consider getting Umbrella Insurance are those who:
- Have significant savings and assets
- Want to protect future income from potential loss
- Coach youth sports
- Own a business
- Own property, particularly investment property
- Own certain dog breeds that are known to bite
- Ski, surf, or hunt
- Own a pool or trampoline
- Anyone who drives
Gaps In Coverage
One potential pitfall in the insurance world is the coverage gap that can arise due to expiration dates that vary from your regular auto or home coverage and your umbrella policy coverage. In addition, when your coverage limits change on a policy, this can also cause a gap in coverage with your umbrella policy.
You can reduce the risk of any gap in coverage by having one insurance agency underwrite your underlying auto, homeowners, and umbrella policies together, giving them the same expiration dates.