Individuals looking to protect the integrity of their finances should look into the benefits of a personal umbrella policy. Umbrella policies offer coverage over and above the limits of the underlying policy. While this may not be appealing for cut and dry property claims, when facing liability judgments or medical expenses, an umbrella policy can be the difference between losing everything and keeping finances intact.
How Do Umbrella Policies Work?
Umbrella policies “sit on top” of policies that are scheduled on the umbrella. The umbrella policy is triggered when the limits of the underlying policy have been exhausted. In most cases, umbrella policies are “follow form.” This means that they cover the claim in the same fashion that the underlying policy covers the claim. A personal umbrella policy can sit on top of homeowners, tenants, condo, dwelling fire and auto, boat and recreational vehicle policies.
Why Is An Umbrella Policy Needed?
There are several circumstances that would merit the purchase of a personal umbrella policy. If a policy holder has an abundance of assets (stocks, bonds, income, checking account etc), the value of which exceed the limits of his or her homeowners or auto policy, an umbrella policy is almost necessary. Should a policy holder be successfully sued, and their policy limits don’t satisfy the judgement, their assets become exposed. An umbrella policy, whose limits exceed asset values, will fully protect all assets.
If a policy holder has a lot of “toys” i.e. boats, motorcycles, RVs, etc., an umbrella policy would be helpful for two reasons. The first is for additional protection to cover any risk inherent to those type of “toys”. Second, in case of a lawsuit, these toys can be considered assets and therefore exposed just as much as a policyholder’s checking account.
Finally, it would be worth it to purchase an umbrella policy if there are teenagers or new drivers residing in the home of the policyholder. Young household members can sometimes do things that are risky. From driving recklessly to throwing parties when their parents aren’t home to playing rough, teenagers can sometimes expose their parents to risk unintentionally. Should these young members do something that causes their parents to get sued, an umbrella policy can assist with these unforeseen issues.
How To Purchase Umbrella Policies?
To purchase an umbrella policy, the underlying policies must meet limit requirements. While these can vary from carrier to carrier, generally speaking underlying policies must have $300,000 limit on home insurance and $250,000/$500,000 on auto insurance before a policy holder can purchase an umbrella policy. Umbrella policy limits start at $1,000,000 and can be purchased in increments of 1 million, for a nominal cost. Some carriers may require that they control both the underlying policy and the umbrella in order to write it, offering a discount for packaging all policies with the carrier. Other carriers do not have this requirement. Your insurance agent will know with which carriers to apply.
Is An Umbrella Policy For You?
Not everyone needs an umbrella policy. A couple who rents or are first time homeowners, with no children and not a lot of assets, most likely does not need an umbrella policy. The more people in a household, the more assets one owns, and the more one has to lose, the more necessary an umbrella policy becomes.
If you are looking for another form of financial protection, and think an umbrella policy is the route to go, contact your Beckerman & Co agent and get a quote.
Filed Under: Blog, Home Insurance