Learning More About a Home Insurance Umbrella Policy
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UPDATED: Mar 22, 2022
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Probably you are familiar with all the types of insurance that can be purchased to protect the interests of individuals:
- Home Insurance – which is a package policy, usually offering insurance on a dwelling, contents, and personal liability
- Automobile Insurance – another package policy, providing legal liability coverage for automobiles you drive as well as physical damage for those same automobiles Automobile policies may be written for such things as motorcycles and scooters as well.
- Recreational Vehicle Insurance – which provides liability and physical damage insurance for such things as boats, four-wheelers, snowmobiles, and other such recreational items
A little-known type of insurance is a home umbrella policy or a personal umbrella policy.
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What is an umbrella policy?
These insurance policies provide additional limits of liability over and above the limits provided for property damage liability and bodily injury liability provided by the primary insurance home or automobile policies.
A home insurance umbrella policy is designed to provide protection for the insured against catastrophic losses over and above the limits provided by the home insurance policy or automobile insurance policy.
A scenario that could occur is one such as this:
Your elderly neighbor goes for a walk on a winter’s day. Not only does she slip and fall on a patch of ice left on the sidewalk in front of your home, but also your miniature schnauzer takes a bite from her left calf, causing a bleeding wound.
Being a good neighbor, you call the ambulance and have her transported to the emergency room. There, it is discovered that she has broken her left hip, needing surgery, traction, and an extensive hospital stay. The dog bite caused problems with the muscle in her calf, causing it to atrophy.
The home insurance policy you have has a personal injury liability limit of $100,000.
After her son, a trial attorney, finishes suing you for negligence in scooping the sidewalk and keeping a vicious dog, -the schnauzer bit another neighbor last year – your attorney’s fees, court costs, and possible share of the hospital and doctor bills has an estimated cost of $500,000.
Since the limits of liability are $100,000, you may end up paying the additional $400,000, putting yourself in a financial bind.
On the other hand, with a $1,000,000 umbrella policy added to your coverage, the bills would be paid in full. Even though this scenario sounds far-fetched, insurance companies have paid some such claims. Insurance is designed to protect you and your assets against the possibility of loss.
Umbrella policies provide coverage above the basic liability coverage provided by your home insurance policy or automobile insurance policy. Because the possibility of loss under an umbrella policy is rare, the premiums are ordinarily relatively inexpensive.
One hundred to one hundred fifty dollars would be reasonable, depending upon your possibility of loss.
Owning a trampoline, pool, or a dog with a history of dog bites can make your premium higher, but it is necessary to inform the insurance company of these possible risks to ensure that they will, indeed, provide coverage.
Shopping for a Home Insurance Umbrella Policy
You should shop for umbrella policies to obtain the most advantageous price just as you do with automobile and home insurance policies and with the diligence of researching a property purchase.
Insurers generally require a minimum of $300,000 on your primary automobile and homeowner’s policies to write an umbrella policy, so you should take into consideration the premium charges necessary to bring the primary insurance to meet minimum qualifications also.
Shop for Umbrella policies by asking for quotations from at least three separate companies so you can compare not only premiums but also coverage offered. Some umbrella policies offer additional peril coverage to add to your personal liability. As with other policies, be certain to examine the financial strength and complaint ratios of the companies from which you solicit quotes.
It is illegal to sell insurance in any state without a valid license from that state. To be sure insurance companies are licensed within your state, look for the company’s name on the website for the state.
States usually have complaint ratios for insurance companies on their website, helping you to determine the efficacy of a particular insurance company. Other place to examine for insurance company’s financial status and complaint ratio are:
- A. M. Best Company – an insurance rating firm
- Standard and Poor’s – a separate insurance rating firm
- National Association of Insurance Commissioners (NAIC)
It is especially important that insurance company offering umbrella policies be solvent and capable of meeting its obligations in the event of a liability loss.
Umbrella policies do not come into play often, but when the company is committed to help you out with an over-the-top loss, it is necessary to be able to trust the insurance.
Options for Losses not Covered Under an Umbrella Policy
If you are assessed damages in the unlikely event that litigation and jury awards exceed your primary insurance, alternatives to insurance may be:
- Bankruptcy – although bankruptcy laws are somewhat varied. You could have to pay additional attorneys fees and possible punitive damages that may not be dismissed by the bankruptcy court
- Payment plans – in which you end up making payments from current income for the fees, court costs, and rehabilitation costs assessed by the court.
Essentially, without an umbrella policy offering additional insurance and the underlying insurance, you could be mortgaging your future as well as the future of your family.
Evaluating the Quotes You Obtained for Home Insurance Umbrella Policies
Compare the following things:
- Premium cost – both for the umbrella policy and any necessary increases to bring the underlying personal liability coverage to the minimum required
- Financial rating and claims ration for the insurance companies – underlying and umbrella insurers
- Additional coverage that the umbrella policy may offer that is possibly not offered by the underlying policies.
Read the policy carefully once it arrives to familiarize yourself with the coverage sold and your responsibilities.
If there is something you do not understand, be certain to ask your agent. Most agents are willing to answer questions and obtain answers if they do not know them.
Finally, recognize that a home insurance umbrella policy will not cover any business activity or volunteer activity in which you may participate.
If, for example, you are on the local amateur theater board and end up being sued, you must have disclosed this activity to your insurance company and received clearance about coverage.
In our extremely litigious society, it is necessary to protect yourself and your assets.
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