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Umbrella Coverage: What It Is and Why You Need It

I thought I would post an article I found from Central Insurance Company.

You might find yourself wondering, “Do I really need an umbrella policy?” The short answer is: yes.

While many consider umbrella coverage a supplemental policy compared to home, auto, and even life insurance, for many, the safety net provided by this unique type of policy is anything but optional.

In this article, we will review everything you need to know about umbrella insurance— from who it’s for to how much it costs—and explore some of the unique features that set Central Insurance’s umbrella policies apart.

What Is Umbrella Coverage?

A personal umbrella policy is designed to provide an additional amount of liability insurance protection and a broader range of coverage than typical homeowner, auto, and other types of personal insurance policies.

“It’s important to remember that an umbrella policy is for liability to others,” says Stephanie Olsen, Senior Personal Lines Product Development Specialist at Central Insurance. “It will not cover your own injuries or personal damage…[nor] will it cover business liability-type exposures.”

Instead, she explains, umbrella policies exist primarily to protect your assets.

“In the event of a claim or lawsuit for which you are responsible, if the limits of your auto or home policy are insufficient…you may experience financial repercussions, including your personal assets being used to satisfy the suit.”

With an umbrella policy in place, however, “if there is a large claim for which you are responsible, the umbrella policy would pay up to those limits,” she says.

Typically, these policies extend your liability limits from $1 million to $5-10 million in addition to the liability limit contained in your other personal policies.

Who Needs Umbrella Insurance?

“There are few people who don’t need an umbrella policy,” Olsen explains. “If you drive a car, own a home, have a pet, have guests to your home, or have a new driver in the family, you should not be without this additional layer of liability.”

This is because, she continues, tragic and unexpected accidents can happen to anyone at any time, and it’s important that you have the coverage you need to protect yourself if they do.

For example, “about 30-40 percent of all of our auto insureds do carry an umbrella policy [at Central],” Olsen explains. “And we always recommend that extra layer of liability…especially for those who have an older or new driver in the house.”

This is because the CDC has found that the risk of motor vehicle crashes are higher among teenagers ages 16-19 than they are with any other group, citing that “per mile driven, teen drivers in this age group are nearly three times as likely as drivers aged 20 or older to be in a fatal crash.”

Liability from auto accidents caused by new or elderly drivers is not the only type of unexpected situation where umbrella insurance can help.

For instance, Olsen explains that there have been situations where a policyholder is walking across the street as a pedestrian and they are hit by a car, yet the person driving doesn’t have their own insurance. In this situation, “if [our policyholder] had uninsured motorists on their umbrella coverage, their injuries would be fully covered by both their underlying auto policy and their umbrella policy together.”

Another recent incident Olsen encountered where umbrella insurance came into play, was when a young man took his parents’ boat out for a drive without permission. One of his friends fell off the back and his leg was severely injured in the propeller. Though not directly involved in the incident, the young man’s parents were considered libel for that accident because they were the owners of the boat. Luckily, the parents could lean on their umbrella coverage to help cover that unexpected claim. Had they not had such coverage, they might have had to sell their personal assets to cover the costs.

“If a situation strikes and you don’t have that layer of umbrella coverage to protect you, your wages could be garnished [or] you could lose your home,” Olsen says. “Simply put, you would have to find some way to cover the difference [between what your current policy covers and the amount you owe]. Your umbrella insurance should be that layer for you.”

How Much Does Umbrella Coverage Cost?

Though the cost of umbrella coverage might vary by company, at Central an average premium ranges between $150 and $175 per year. “This is a relatively inexpensive investment for a million dollars in coverage,” Olsen says.

What is Not Covered By An Umbrella Policy?

Despite the dozens of opportunities for policyholders to utilize their umbrella coverage, it’s important to note that it is not applicable in every situation. Below, we’ve outlined a list of some of the most common incidents that would not be covered under your umbrella insurance policy.

  • 1. Things that happen directly to you, your home, your car, or your property.
  • 2. Intentionally illegal behavior or criminal acts.
  • 3. Intentional damage to people or property.
  • 4. Contracts entered knowingly by both parties.
  • 5. Damage to business or business-related property.

Keep In Mind: A commercial umbrella policy is required to cover costs related to business liability.

It’s also important to remember that anything explicitly excluded in your policy—such as injuries caused by certain breeds of dogs or from specific recreational vehicles—will not be covered by umbrella insurance.

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