Umbrella insurance policy for homeowners

Umbrella insurance policy for homeowners


There are some events and circumstances that, due to their magnitude, simply overcome the possibility to be covered by standard policies. As a homeowner, when you look at your coverages, you realize that liability has the most potential expenses to be insured on: what if the limits are overcome? Hundreds of thousands of dollars would be at your charge, meaning a financial disaster, beyond the damage of other nature for which you are challenged: extreme medical bills and/or lawsuits are what this insurance will cover. In general, some negligence is involved on your part.


What exactly is umbrella insurance?


An umbrella policy, also known as excess liability coverage, is a special extended form of liability insurance that protects you against major lawsuits claimed by others who underwent damages within your property; that also applies to car accidents for which you are partially at fault. In fact, one of the advantages of umbrella insurance is that it extends protection to your house and car.

It steps in when the limit amounts of the underlying policy have been outreached and you would otherwise have your money and assets exposed, in order to cover legal expenses for yourself and/or medical for others: if the damages are estimated for one-million and you already had $500,000 of coverage, then umbrella will provide the exceeding half-million.


How would you establish if you need an umbrella policy?


You would need it if you have worthy assets you could lose, and if you’re jeopardized for a liability issue, thus willing to stay protected against it. When the injured party knows that you got assets, it will almost certainly try to build a case; on the other hand, if you have little to give away, others won’t even bother, but it doesn’t mean you are out-of-peril.

Keep in mind that, besides the money, if you are underinsured you will have to put your hands on assets like personal belongings, vehicles, investments, business goods, even future wages.

Consider also if you are involved in some activities (especially work-related) that imply a high liability on your part: if anything went wrong, you could be sued for defamation, or if you might cause a physical incident to other people under your wing.

As for any other insurance, you may be not eligible if you have a poor credit score, or there are multiple claims in the past against you.


How much umbrella coverage do you need?


A simple method is to calculate your net worth and choosing the next greater amount of coverage available. Of course, if you came to see that net worth is less than the liability part of your current policy, then you won’t buy an umbrella. However, some professionals advice to not consider the net worth, but only the positive value of assets (therefore no debts in the calculus) to determine the best umbrella coverage; in this way, you will surely have more protection. Another further layer of protection is for your future wages: as a result of a lawsuit, a percentage of them could be subtracted from your future income: to face this issue, you can multiply the income by five and add the value to assets to determine the total coverage.

Still, you have to think about situations: let’s assume you are a “people person” and you like to accommodate parties, then there is the possibility of damage to people altogether. You will have to face prolonged medical expenses for them and even covering lost wages for the time the other parties are on illness. Even if the injured have health insurance on their shoulders, you are liable.

Consider also potential damage to other people related to you: sons who will attend the college, parents or relatives who need support: in the case of financial failure, you still have liability towards them. Then you need just more than a standard policy.

Other conditions for which umbrella is recommended: risk for others to be injured while they are in a vacant land of yours, drowning in your swimming pool, any kind of damage if you receive clients in your home for business; injuries to tenants; social media engagement, especially if you a very important person online, are all major factors.


How much is umbrella coverage?


While the standard for liability coverage goes typically up to $500,000, with an umbrella policy it starts from $1 million, and from there you go with one-million increments until $5 million; you may be even eligible to be covered up to $10 million. The cost of the policy depends on your location, credit history, net worth (or annual income), age, and past claims. In most cases, a $1 million umbrella coverage is just what is needed, and the most bought, for an amount of $150-$300. However, that limit may be easily reached due to some events: multiple parties suing you, especially if you have assets, like real estate that you don’t live in or non-retirement investments (which can be protected). If you lost the lawsuit, although in rare cases, even home can be used to pay!

A discount can be applied if you bundle insurances under the same company.


What’s under umbrella insurance?


-Injuries to people or damage to other property, any perils that justify a legal liability. Items that are somewhat hazardous in their usage, for instance, swimming pools and trampolines;

-vehicles you own that may cause harm to others;

-events that may be out of control, like dogs bites;

-calumnies, scandalmongering, false arrest.


What is not covered?


-Any kind of harm that was in some way expected or seems planned

-Own property damage

-Damage from some special vehicles, like motocross bikes, jet-ski

-Home-based business-related issues for customers and workers under you.


As for this last point, some rules differ slightly depending on the type of work relationships, for which it’s best (as always) referring to the policy terms.

So, having an ordinary home plus some other common assets makes sufficient a standard liability coverage around $300,000; if you have a big home and (probably) worthy belongings, such as cars, jewels, extra owned buildings, business assets, then, by all means, consider buying umbrella insurance.