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Should I Buy An Umbrella Policy ???

Updated on October 25, 2012

Umbrella Coverage

At times it can seem terribly overwhelming for many of us when it comes to purchasing insurance. There are so many policies to consider. We must decide on health, life, long term/short term disability, long term care, homeowners and auto insurance. These are all important considerations and are typically vital to have in place. Yet one of the most important commonly overlooked and least expensive insurance is that of the umbrella policy.

What is an umbrella policy ??? An umbrella policy is simply just excess coverage above your existing policies. It essentially extends the range of coverage. For example if you were unfortunately in an auto accident and you were deemed to be at fault, you’d likely be sued. What if the settlement to be paid to the counterparty was $1,000,000.00 and your policy limit covered the liability to $500,000.00 ??? Guess whom is liable for the difference ??? If you have an umbrella policy for $1,000,000.00, the additional $500,000.00 would now be covered.

However an umbrella policy is not restricted exclusively to incidents related to auto liability. The term umbrella means it will cover you and your other household members for a wide array of personal liabilities. What if your dog took a bite out of the neighbor, your teenage son was in an accident while drag racing his car and someone was seriously injured. Perhaps you accidently damaged your neighbor’s property or someone slipped on the ice on your driveway. Unfortunately we live in an extremely litigious society. Virtually all of us know someone whom has been sued for one reason or another. So this type of protection is an added layer of protection.

Most companies will typically require some type of limits to the coverage of your existing policies before you can apply for an umbrella policy. So as a result it is generally a good idea to maintain all of your property and casualty policies with one insurance company.

There are typically some limits to an umbrella policy. Items such as punitive damages, or a liability incurred as a result of an intentional act are examples. Should you injure another individual during the commission of a felony, don’t expect that to be covered. It is always best to check with your agent on what exclusions apply.

Umbrella policies can also be issued for commercial business purposes. Obviously the day to day activities of virtually any business can incur substantial liability. Your personal umbrella policy will not typically cover liabilities incurred from a business activity. It is not unheard of for someone serving on a charitable board or civic body to be sued as a result of their service. The mere fact that you may not have received any compensation for your service has no bearing.

The good news is that an umbrella policy is typically fairly inexpensive. A family can typically carry a $1,000,000.00 umbrella for a little as $300-$400 in annual premiums. The amount of coverage will likely be dictated by your net worth and assets that would be potentially at risk. For commercial policies the cost of the annual premiums would depend greatly on the type of industry you are engaged in. But in very few circumstances does it not pay to carry such coverage at an individual level. If you do not currently have such coverage in place, I would suggest you contact your insurance agent to discuss this further and receive a quote.


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