Umbrella insurance isn’t discussed as frequently as auto or homeowners policies; therefore, it’s easy to become intimidated by it. Luckily, it’s pretty simple as long as you understand the two primary services that umbrella insurance provides and the details in your policy.
The Two Primary Services in Umbrella Insurance:
Excess liability: Personal umbrella insurance provides excess or additional coverage to existing policies. That means if you end up in a multi-car pileup or your dog seriously injures someone, your car or homeowners insurance will pay first (up to the coverage limits you’ve set). Then your excess liability takes effect and covers an additional $1 Million or more. Personal umbrella policies typically start at $1 Million in coverage, providing substantial additional protection!
Primary coverage for excluded losses: Excluded losses are circumstances your insurance won’t cover. In most homeowners and auto insurance, for example, they’re clear that they cover “bodily injury” but not “personal injury.” However, umbrella policies cover some exclusions and can be used if you’re sued for mental anguish, libel, or slander. In these cases, the umbrella policy is your primary coverage, so you can go to them directly instead of waiting until you’ve exhausted your homeowners or auto policy limits.
Luckily, instead of trying to remember a list of coverages and deductibles, when you’re buying umbrella insurance, there are only a few terms and details you need to remember.
Self-insured Retention Limit (SIR): This is essentially your deductible and ranges from $250-$10,000. Like most insurance policies, a higher deductible usually means lower premiums. Your SIR is also only applicable when using your umbrella policy for your primary coverage. That means if you use it for an event covered by your auto or homeowners insurance that has already reached its maximum limit, there’s no SIR payment, and your coverage starts automatically.
Minimum Required Limits: Since umbrella insurance provides excess coverage, it requires you to carry specific insurance minimums. These limits are critical because your umbrella policy will only start paying once you’ve exhausted those minimums, even if your policy has lapsed. If you’re required to carry $500,000 in auto coverage, and a car accident costs you $1 Million in legal fees, your umbrella insurance will only start paying after that first $500,000 limit has been reached. If you lower your auto coverage or let it lapse, you’d still need to pay that first $500,000!
Exclusions: Umbrella insurance is helpful for extra protection but doesn’t cover everything. Business acts such as a car accident you cause while driving a company car must be covered by business-specific insurance, not a personal umbrella policy. And intentional or criminal acts or contract-related lawsuits are also excluded by these policies.
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