Umbrella Insurance a complete guide

We all bear losses at some point of time in our lives. And for this we insure ourselves for various types of losses through several insurance types. But have you ever thought that you could be held liable for a loss in which the amount of indemnification is so large that, it would exceed the limits of your liability insurance and could pose a possible threat to your assets or personal wealth. In this case, umbrella insurance comes into existence and a possible solution in managing risk in being held liable for a catastrophic event resulting in major losses.

Before understand the types, inclusions-exclusions of Umbrella insurance, let us first understand what is umbrella insurance?

Umbrella insurance is a type of liability insurance. It provides protection against catastrophic losses. It helps you in protecting against major claims and lawsuits. In simple words, it fulfills following three purposes:

• It provides additional liability coverage above the limits of your homeowners insurance, auto insurance and boat insurance. This type of insurance comes in when liabilities on these policies gets exhausted.
• It helps in protecting coverage for claims that remain excluded from other liability insurance policies like false arrest, slander which means injurious spoken statement, libel which means injurious written statement and liability coverage on rental units of your own.
• It drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims.

If you have a personal umbrella policy, your premiums are not tax deductible but if you own a business and have an umbrella policy that supplements your other business liability policies, your premiums are tax deductible. There is one more case in this, where you are the owner of rental property and you rent out your property. So, in this case you are conducting a business transaction but you can also include your rental property under a personal umbrella policy. In this case you can deduct a portion of your premium on taxes.

Following are some examples of types of coverage provided by umbrella insurance policy and how they help in protecting you:

• Bodily injury liability: Under this it covers the cost of damages to another person’s body. Following are some types of injuries explained under this head:

a) Injuries to other parties due to serious auto accident where you stand completely at fault.

b) Injuries caused to other parties due to your pet like dog.

c) Injuries caused to other parties that have come to your home and they get injured due to some kind of fall.

d) Injuries caused to your neighbor’s child who had fallen while playing in your garden.

• Property damage liability: This type covers the cost of damage to another person’s physical damage to the property. Following are the instances under this head:

a) Auto accident followed by damage to vehicles and other physical property where you stand at fault.

b) If another person’s oriented rug is ripped off by your pet.

c) When your child is at fault for any kind of accidental damage to school property.

• Owner’s of rental units: This covers the cost of damage you face as a landlord. Following are the instances of cost of liability as a result of:

a) Somebody walking by the sidewalk of your rental property and due to a crack in the sidewalk, he gets hurt and sues you for damages.

b) Someone is bitten by your tenant’s dog and sued you in the case.

• Some other personal liabilities situations where you get coverage under this policy are the following:

a) Injurious spoken statement.

b) Injurious written statement.

c) False arrest.

d) Detention.

e) Imprisonment.

f) Malicious prosecution.

g) Mental anguish.

Following cost of damages remains excluded from the umbrella insurance:

• Cost of damages of the crime done by you intentionally.
• Liability arising from aircrafts and jet skies.
• Cost of damage to your own property.
• Your own business activities.
• People who work on your property should be insured before they start working for you.
• Full time domestic employees.
• Intentional and criminal acts.

Following are the advantages of umbrella insurance:

• Umbrella insurance provides extra liability coverage and legal defense costs when the limits of your auto insurance, home insurance and any other kind of insurance have been exhausted.
• It also covers incidents like written and spoken injurious statements.
• The limit of coverage starts from $1million which is a decent amount in comparison to other policies.
• This type of coverage applies everywhere in the world.
• It covers certain rental items also for which you do not have any other kind of insurance.

To qualify for umbrella insurance, you must carry an auto insurance or property insurance.

Let us study, how an umbrella insurance policy protects you with an elaborated example. Let’s say, because of an auto accident where you are at fault, another person gets injured and the injuries cost him $400000. And bodily injury on your auto insurance is $200000. In this case your auto insurance policy will cover $200000. Now $200000 are left to recover. Your umbrella insurance policy will cover $200000 in this case which means your umbrella insurance policy is going to cover the amount above the limit set in your auto insurance policy up to the limit you choose for your umbrella insurance policy.

Choosing umbrella insurance policy is a wise decision because it helps in preventing your assets such as house, car, investments, retirement accounts, savings accounts getting exposed. If you are sued for a lot of money and you do not have enough liability insurance or umbrella insurance policy, all of your above assets get exposed and you have to bear a big loss.

Some people umbrella insurance more than others. These are the people who are at higher risk at getting their assets exposed. Following are some points of concern in case of deciding if you need to take an umbrella insurance or not:

• If you are engaged in the activities that put you at greater risk of incurring excess liability.
• Some personal liability risk factors that enables you to guide in taking umbrella insurance are owning property and renting it out, employing household staff, having a trampoline, hosting big parties and if you a well known public figure.
• If you have a teenager driver.
• When you own a home with large swimming pool.

Following are two types of umbrella insurance policies:

1) Personal Umbrella Insurance Policy: A personal umbrella insurance policy is a policy which provides liability coverage when your auto insurance and homeowners insurance policy is not enough to cover your cost of damage. It helps is protecting your family and property.

2) Business Umbrella Insurance Policy: A business umbrella insurance policy is a policy which provides liability coverage when your business auto liability, general liability or any other kind of liability coverage stops.

You can customize your commercial umbrella insurance policy according to the nature of your business. To get your umbrella insurance policy customized you need to provide the following:

1) All financial and operational details of your business.

2) Copy of your current auto insurance policy and general liability insurance policy or any other kind of policy.

3) Any kind of losses that you have incurred in the past.

4) List of company’s officers with their positions and experience.

5) Annual payroll of employees.

6) Break down of employees such as full time employees, part time employees, sub contractors, consultants.

1) Malpractice: In case of healthcare and legal fields you already have a malpractice insurance policy. In this if you are sued on account of cost of damage of any kind and the limits exceed the amount of your malpractice policy, your business umbrella insurance will come into existence and cover the losses incurred.

2) Property Damage: Umbrella insurance policy covers damage to property in most of the cases but not in all cases. If an accident happens where you were at fault involving several cars, the property damage caused to other cars is enough to sue you. And this case umbrella insurance policy is surely going to cover you.

3) Dog bites: Umbrella insurance policy covers damage caused by dog bites. If your dog bites your neighbor, you are liable for the bodily injury and if your neighbor decides to sue you. Some insurance companies protect you only in case the dog that has bitten your neighbor is an aggressive breed otherwise you do not get the umbrella insurance policy coverage.

4) Lawsuits: Umbrella insurance policy covers lawsuits and other liability claims that do not result in legal actions. The main aim of people buying umbrella insurance policy in case of lawsuits is to save their assets in case lawsuits. The main aim of the liability insurance is to protect you in case you are found liable for causing damage to property or injuries to body and if you are not found liable, then for your legal defense.

5) Professional liability: Psychologists, investors, and financial planners are some occupations that take major advantage of this policy. An umbrella policy in this case provides liability supplements to existent business liability policies. It covers the loss occurred due to errors and omissions by you in the business activity which is not covered by auto and other general liability policies.

6) Uninsured motorist: Umbrella insurance policy does not cover the damage caused by the uninsured motorist. If an accident is caused by an insured motorist and he does not have the coverage to pay your damage of property.

7) Floods: Umbrella insurance policy does not cover damage caused due to floods. It will only cover damage to property and damage to body where you are solely responsible for the damage and provide it to the third party. Umbrella insurance covers some water damaging scenarios. For example, if you live in a duplex, an apartment or a condo and due to overflow of bathtub because you left the tap open in the bathroom, the water destroys your expensive furniture of the house. Umbrella insurance policy in this case will cover the cost of damage.

8) Car Rentals: If you are a renter and you have your rentals insurance policy, you can purchase an umbrella policy to extend your liability limits beyond the standard coverage.

Now you know that you are going to take umbrella insurance policy. Now the next step is to know the amount of umbrella insurance policy needed to get full protection. Follow these steps to find out this:

1) First step is to calculate your net worth. The net worth is calculated by adding up all your assets such as your building, cash in bank, retirement accounts, stocks, bonds, savings accounts and everything that has a financial value and subtracting the amount of debts.

2) Second step is to find out how much liability coverage you already have from your existing insurance policies.

• In case you have auto insurance policy you have to get the amount of bodily damage per person, bodily damage per accident and property damage per accident.
• In case of homeowners insurance policy you need get the amount of personal liability per occurrence.

3) Third step is to subtract the amount you get in step 1 that is Net Worth, from the amount your get step 2 that is existing insurance policies. The difference is the amount of money you have unprotected with you. Getting an umbrella insurance policy for at least this amount will give you full protection.