Are You Getting Excessive?
Okay, you have a policy for your home and the cars driven by your family. You have just the right policy for the apartment you rent out to others as well as special coverage for your boating excursions. Your homeowner’s policy even has a special form to cover the activities connected to the business that your spouse runs out of your home. Yes, it looks like you can breathe a sigh of relief and be confident that you have all the coverage you need. Or should you have an umbrella? An umbrella is the term for a liability policy that covers your other, primary liability coverage on an excess basis (and often to provide coverages that aren’t available under the primary coverage).
Doesn’t “Excess” Mean Too Much?
Not in the case of carrying umbrella coverage. Umbrellas are designed to be carried over a person’s primary or underlying liability coverage. A person’s primary coverage is typically part of his or her personal automobile or homeowner’s coverage. Primary refers to the fact that in the event of a loss, the liability portion of your auto or homeowner coverage is the first to respond, that is they respond on a primary basis. Umbrellas or excess liability policies respond to an eligible loss only after the primary insurance has paid its limit. It’s quite possible that your primary insurance limits provide more coverage than you’ll ever need. However, loss circumstances could result in primary coverage that’s not covered by a policy. For instance, your newly licensed child is driving the family car and slides on an icy highway. He ends up causing a chain collision damaging several cars and injuring a dozen drivers and their passengers. If you don’t have enough primary coverage, any shortage may have to come out of your personal assets. Or maybe you often volunteer to help transport members of your son’s first grade class on field trips and you have an accident because you tried to beat a yellow light.
Umbrellas generally provide additional liability coverage for the following underlying policies:
Homeowners / Farm Owners
Personal; (Comprehensive) Liability
The additional coverage may often extend to providing for related expenses such as the cost of providing a court defense.
Why Isn’t Coverage Excluded?
Of course, umbrellas don’t always work on an excess basis. Umbrellas may act just like an underlying policy for losses that are not generally covered by your auto or homeowners. In this case, an umbrella may respond the same way as a primary policy. For instance, you may have to go to court after being accused of defaming another person. The liability section of your homeowners policy may not cover this type of loss, called personal injury, but it may be a covered cause of loss under an umbrella. You may also need an umbrella to handle odd situations such as hobbies or activities that may increase a person’s chance of facing liability losses. For example, you have an in-home hobby of training guard dogs or you publish a newsletter on the Internet covering local or state politicians.
In certain instances, umbrellas may provide coverage for any amount of a loss that exceeds the policy’s deductible. However, in place of “deductible,” umbrellas refer to a self-insured retention or SIR. IMPORTANT: don’t get confused into thinking that umbrellas pay for anything that is excluded under a primary policy. Umbrellas do provide broader coverage, but only a careful evaluation of the actual policy wording will reveal the extent of the additional coverage. In certain cases, an umbrella may “follow the underlying coverage”. This means that the umbrella covers ONLY the situations covered by its underlying coverage. In this case, the umbrella also excludes a loss that’s excluded under a primary policy.
So, Do You Feel Any Rain Drops?
You may or may not be feeling the need to carry an umbrella. The best way to find out if extra coverage is necessary is to discuss your coverage needs with a professional insurance agent. Especially if you have a larger than average amount of personal assets or are involved with activities that could expose you to larger liability losses.