Most people like to secure their most valued assets through home and auto insurance. Umbrella insurance is for those who wish for an additional layer of coverage, either for their highly prized
Howdoes umbrella insurance work?
Umbrella insurance is typically sold inmillion-dollar increments. This means that the minimum insurance coverage itcan provide is one million dollars.
As you can imagine, this high coverageamount is well beyond an ordinary insurance. In fact, an umbrella insurancepolicy works above and beyond a base insurance policy, and is hence alsoreferred to as ‘excess liability insurance’.
In order to invest in this kind ofinsurance, most companies may mandate the need for a base insurance policy,with a minimum amount. This can be in the range of 150K – 250K for vehicleowners and 250K – 300K for property owners.
Umbrella insurance makes sense when aperson requires additional coverage beyond what these base policies can offer.In this situation, the policy holder can choose to purchase from the sameinsurance company in order to keep premiums manageable.
Howcan an umbrella insurance benefit property owners
Typically, a property owner firstpurchases a basic package to insure their home/property. However, there may belimitations to the insurance coverage they receive.
For instance, the base insurance mayprotect the property from natural calamities, but not from any damages incurreddue to libel or slander, vandalism, loss of privacy, damage caused by renters,damage caused to visitors by pets on property, accidental damage to others onthe insured property (like falls or injuries), and so on.
Fortunately, most of these ‘additionalrisks’ can be covered by umbrella insurance, with higher financial limits(million-dollar increments).
For this reason, property owners areadvised to purchase umbrella insurance in the following cases:
- Ifyou are a landlord, renting to individuals.
- Ifyou are a landlord, renting to companies, non-profit and voluntaryorganizations.
- Ifyou have high-risk assets installed on your property (like a swimming pool,trampolines, gym equipment, etc.).
- Ifyou or your renters have pets on your property.
- Ifyou have priceless assets on your property (such as antiques), and their valueis not covered by your home insurance policy.
In addition, umbrella insurance can alsocover legal fees, if you are sued for one of the above reasons. However, donote that umbrella insurance will typically not cover any damages caused toyour own property (as this is covered by basic home insurance).
Howcan an umbrella insurance benefit vehicle owners
Imagine you get into an accident drivingyour vehicle. The base insurance may cover the damages caused to either vehicle,the not at fault and at fault drivers.
However, it may not cover thousands ofdollars in medical fees due to injuries sustained by the other party in theaccident. In this case, an umbrella insurance policy comes in handy to provideadditional coverage on top of the base policy.
It may be a good idea for vehicle ownersto purchase umbrella insurance in the following cases:
- Ifyou use your vehicle to tow/transport other vehicles (like boats, bikes,motorcycles, and so forth.).
- Ifyou use your vehicle to tow/transport other highly prized assets.
- Toprovide additional insurance coverage for expensive medical bills and legalfees, in case of an accident.
Again, umbrella insurance will typicallynot cover primary damages to your own vehicle, already covered by the basepolicy.
Howcan an umbrella insurance benefit individuals
Today, there are several high-riskscenarios concerning individuals that warrant the purchase of umbrellainsurance. (This is on top of a base personal insurance policy).
- Ifyou participate in an extreme sporting activity such as skiing, paragliding,mountain climbing, hang gliding, and so on.
- Ifyou coach children in sports. (Kids can be susceptible to injuries, andumbrella insurance will protect you in case of lawsuits.)
- Ifyou are a professional critic (like food critic, or reviewer or businessproducts), in which case you may be vulnerable to defamation lawsuits.
Advantagesand limitations of umbrella insurance
As described above, umbrella insuranceworks well:
- To provide additional insurance coverage to individuals, property and vehicle owners, on top of your basic policy.
- To provide insurance coverage in high-risk areas and situations.
- To cover high-expense costs incurred due to medical fees, legal fees, loss of credibility, and the list continues.
- To protect yourself with insurance, anywhere in the world. (It goes beyond what typical travel insurance offers.)
- To get a high amount of insurance (million dollars and above), for a low premium. Yes, it is less expensive than you think!
Umbrella insurance also has somelimitations, as follows:
- Ithas to be purchased on top of a base insurance policy – for individuals, home/propertyowners, or vehicle owners.
- Itdoes not cover damage to your own person, property, or vehicles (as these arecovered by a base policy).
- Itdoes not cover damage caused by your business, to other people or theirproperties.
- Itdoes not cover damage caused by ‘recreational vehicles’ (like jet skis).
- Itdoes not cover damage caused due to criminal activity, or expenses incurred dueto legal action.
Howmuch should you insure through umbrella insurance
Umbrella insurance is essentially anadditional coverage, for high-risk and high-expense scenarios. For this reason,it is sold in million-dollar policies (starting at 1-million, then 2-million,and so on).
It is best to choose a policy thatcovers your total net worth, so you and your assets are protected in themajority of situations. This can include your total income, your potentialfuture income (especially if you are a student in a high-earning field likemedicine, law or entertainment), and the totality of your assets.
Isumbrella insurance cost-effective, and is it worth it?
Yes and yes! A policy for a milliondollars insurance coverage can be purchased for as little as $150 to $300 foran entire year. Given the amount ofrisk individuals, property owners, and vehicle owners face in today’schallenging world, this is a prudent idea for some people.
