People buy insurance to safeguard their families and assets. Personal umbrella insurance is a form of insurance that is intended to add additional liability coverage on top of another policy, for example homeowners and/or auto insurance.
What Is Covered by an Umbrella Policy?
Umbrella insurance is intended to safeguard you against disastrous liability judgments or claims. This type of insurance becomes effective when the basic liability limits (like for an auto or homeowners insurance policy) have been attained.
Umbrella Insurance Normally Covers
- personal injury
- property damage
- landlord liability
- bodily injury
Umbrella Insurance Usually Doesn’t Cover
- deliberate omissions or criminal acts
- business losses
- written or oral contracts
- personal belongings
An Example of How a Personal Umbrella Insurance Policy Works
In order to get a clearer understanding of how a personal umbrella policy operates, here is an example: In the event that you are to blame in a car accident where another driver gets injured, your standard auto insurance might provide coverage to the other driver up to a specified limit, for instance $250,000. On the other hand, what happens when that limit is insufficient to cater for the resultant medical bills of the other driver?
If the other driver suffers serious injuries, you can legally be held responsible for any damages that are over and above the $250,000 covered by your car insurance. And if he or she files a suit against you, your personal assets could be at risk. Let us assume that the injured driver was a highly paid professional such as a surgeon. What if the car accident that you caused led to an injury that stopped them working for 6 months? All of a sudden they are suing you for a million dollars to compensate for the six months that they were unable to work.
The liability coverage of your car insurance policy would cover the $250, 000, but where would you get the other $750,000 from? A personal umbrella policy could help to cater for the extra costs in case your regular insurance policy is insufficient. The policy can give you the additional coverage you require so you do not get bogged down trying to raise the remaining balance. This additional policy can help to safeguard your home, bank account and other personal assets.
In nearly all cases, personal umbrella policies are structured using million-increments, usually between $1 million and $5 million. Even though an umbrella policy is not needed, it can offer extra protection in case an accident unfortunately happens.
Which Situations Are Not Usually Covered by a Personal Umbrella Policy?
Damage to your personal property
Whereas personal umbrella insurance is intended to cover costs in the event you are held liable for damages to the property of another person, the coverage does not usually apply if you damage your personal property. Let us assume that you have an overflowing bathtub that ends up damaging your home’s drywall. The personal umbrella coverage excludes these damages to your wall. However, in the event that the overflow ruins the property of a neighbor living downstairs, your umbrella policy might cover the damages arising from your negligence which means you will not have to pay for the loss from your own pocket. But it is important to remember that the benefits of an umbrella insurance policy come into effect only when the limits of the underlying policy have been exceeded.
According to the American Institute of Certified Public Accountants, losses pertaining to your business operations or damage to the property owned by your business are not protected by a personal umbrella policy. The exclusion is applicable even where you operate your business from home. For instance, if you earn your income by offering day care services from your home, any liabilities arising from such an arrangement would probably not be covered.
A personal umbrella insurance does not usually cover other business-oriented liabilities like malpractice lawsuits or losses connected to a paid position for example as a member or officer in a governing board of a commercial organization.
Criminal or deliberate actions
Personal umbrella policies typically do not provide protection from the consequences of a person’s deliberately illegal or harmful actions. For example, it will not cover you for restitution owed when you get convicted of a crime or for damages as a result of deliberate actions.
Written and oral contracts
A Personal umbrella insurance policy will not usually cover any liability resulting from an oral or written contract that you might have entered. For example, if you end up getting sued by someone you hired to carry out some work in your home, your umbrella insurance policy is unlikely to protect you.