Information on Umbrellas

Most of us know that umbrella policies cover us in the case of exceeding the liability limits in our auto or home insurance policies. While this is true, there are other reasons to hold umbrella insurance.

Umbrella insurance provides excess liability above and beyond the coverage amounts on underlying policies. That is, if we are liable for damages in excess of what our policies provide, the umbrella provides the excess.

In addition to auto and home policies, umbrella insurance also provides coverage on motorcycles, boats, ATVs, as well as a second home, land, etc. Naturally the more items that are insured under the umbrella, the more the premium increases.

What about coverage for things not covered by an underlying policy?

Less thought about but still covered under umbrella policies are occurrences such as libel, slander, certain lawsuits, and personal liability. This could include dog bites or defending yourself from personal injury (self-defense). Umbrella insurance will also provide for your legal defense in a lawsuit – assuming it’s covered under the policy.

An umbrella policy does not negate the necessity for high liability limits on your underlying policies. For example, an individual may think that they can reduce the liability on their auto or home insurance because they have $1 million in umbrella coverage. This would be a mistake.

What would happen in this situation is the policyholder would be responsible for the difference between the coverage they should have had, and what they currently carry. For example, let’s assume that an umbrella policy requires $300,000 of liability on the home insurance policy and the policyholder reduces the limit to $100,000 to save a few bucks.

The policyholder then has a loss where they are liable for $500,000 worth of personal injury. They are required to have liability of $300,000 on the home before the umbrella kicks in, yet they only have $100,000.

The insurance company will require the policyholder to personally cover the difference between what they have and what they should have – in this case the difference between $300,000 (required) and $100,000 (current coverage) – $200,000. This is a significant amount; and not worth the few dollars saved by reducing the liability on the original policy.

Should you have questions about specific events or coverages/exclusions, it never hurts to ask your insurance provider. Certain activities or events may require supplemental insurance coverage or a standalone policy.