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When to Consider Extra Liability Coverage
Investopedia defines umbrella insurance as “Extra liability insurance coverage that goes beyond the limits of the insured's home, auto or watercraft insurance. It provides an additional layer of security to those who are at risk for being sued for damages to other people's property or injuries caused to others in an accident.....”. While this may seem to be an overreaction, we live in a time when people sue other people for more significant amounts of money than we have seen in years past.
Most homeowner policies and automobile policies offer an additional layer of coverage for personal liability. In general, this is sufficient to meet the needs of most people. However, there are specific circumstances when a personal umbrella insurance policy may make good financial sense. Some of these conditions include:
Small business owners – Personal umbrella policies will not help a business owner if they are sued for business related issues such as product defects, etc. However, these policies may be helpful in protecting the assets of the business if the owner is sued personally for incidents covered under the policy. For example, if someone fell at your home and sued you, a personal umbrella policy may help protect your business assets from being seized and liquidated to pay off damages. It is important to remember the limitations of these policies – they are extensions of homeowners, automobile, watercraft and other personal policies. They are not a business policy.
High net worth individuals – Those who have a high net worth including investments, expensive vehicles, investment property and a home that is high valued should always consider an umbrella policy. Accidents happen all the time and a single accident that occurs on a property can wipe out savings, cause the loss of assets and be responsible for other high-risk problems.
Before purchasing this extensive type of insurance it is important that the coverage options are carefully evaluated. Personal umbrella policies may help protect specific business or personal assets but have important exclusions, such as not covering business related lawsuits.
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Understanding the Limitations
Personal umbrella insurance is not a substitute for other policies. Most insurance companies will only offer umbrella insurance to those individuals who have large amounts of coverage and additional riders on their existing homeowner and automobile policies. Many companies also require that a policyholder have all of their insurance policies at the same company before offering coverage.
The cost of umbrella policies
Most umbrella policies are fairly low cost for the amount of coverage that is offered. However, some people may still find that the added cost can be a burden. Some insurance companies will recommend that those who are considering umbrella policies increase their deductible payments on other policies as a means of keeping their annual costs down. This may be practical for some, while not being practical for others.
What is not covered
Umbrella policies are designed in a way that helps shield assets. They help the policyholder prevent their assets from being liquidated in the event they lose a lawsuit that stems from an automobile accident or an accident at the policyholder's home. This does not mean that they cover every type of lawsuit. For example, small business owners are generally not covered for any business related activities or accidents that occur on company property. Umbrella policies are an extension of other personal liability policies.
Umbrella policies are designed to cover personal or property damage to other people’s person or property, not the policyholder. Insurance salespeople will often explain the limitations of these policies to those who are considering them. It is important to understand what is covered and what is not covered before purchasing this type of policy.
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Weighing the Risk of Being Sued
Some people are at a higher risk of being sued than others. Here are some of the normal risks where you should consider a personal liability umbrella policy.
Investment and vacation property owners - People who own property that is available for rent or a vacation home that they visit only a few times a year are at an increased risk of being sued. Property owners who rent may be faced with lawsuits when a tenant is injured in a fire, break in or from faulty maintenance on a property. While some homeowner policies may take care of many of the expenses that are involved, there is a greater risk for being sued for larger amounts.
Those with a long commute - Long commutes generally increase the potential for accidents. This is even more prevalent if a commuter travels during rush hour. Those who have long commutes and have other risk factors for being sued are often advised to take an umbrella policy.
Home hazards - The homeowner who has a swimming pool, a lot with a number of trees that may encroach on neighbor’s property or pets like dogs is also in a high risk pool for being sued over and above their current coverage. Some consideration should be made in these instances to help protect current and future assets.
Each homeowner should carefully evaluate their insurance needs. In some cases, extra policies may be required to help protect their assets in the event that they are sued for something that is beyond their control. Even if a homeowner is meticulous about how they maintain their property, drive and keep their animals under control, it does not mean that they are not at risk for being sued. Always speak with an insurance professional to determine what types of policies best meet your individual needs.
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- Umbrella Insurance Policy http://www.investopedia.com/terms/u/umbrella-insurance-policy.asp
- Amy Fontinelle; It's Raining Lawsuits: Do You Need An Umbrella Policy? http://www.investopedia.com/articles/insurance/09/do-you-need-an-umbrella-policy.asp#axzz1RnSoSJXX
- Earth with umbrella: sxc.hu/Ambrozjo
- New York Life via wikimediacommons.org/Popular Science Monthly Volume 26 Released to public domain