When It Rains, It Pours: Always Carry an Umbrella (Policy)

The umbrella policy may sound like an unnecessary addition when you already have home and auto or general liability and worker’s compensation insurance, but, as with any insurance, the point is to avoid a huge financial loss.  The name itself gives a bit of an insight to what it is.  The umbrella provides additional coverage over your policy limits in the event of a major loss.  The umbrella policy covers legal fees, court ordered payments, medical fees, and any other costs that are over what your regular insurance would cover.

For businesses, a general liability policy would cover any medical bills or loss of wages in the event that a customer is injured due to negligence of the insured business.  If the per-occurrence limit on the GL policy is $500,000 but the total cost of damages was $650,000, then the financial responsibility laws would leave you finding a way to pay the additional $150,000. If these overages were not paid, then legal action could be taken against the business which would cost money for legal expenditure, possible settlements, lost work time, and could ultimately result in the failure of the business or the revocation of their business license.  What an umbrella policy would do is cover the excess medical costs of $150,000 and also cover any legal action filed by the injured for pain and suffering, loss of wages, physical impairment, or other issues.

Similarly, an umbrella policy for personal insurance would cover any payments in excess of the limits for home, auto, watercraft, or other policy.  If someone was to be injured at a party you hosted, then your home insurance would cover the damages up to the medical limit on the policy.  Should this amount be exceeded, the personal umbrella policy would cover any other financial responsibilities that were directly caused by the occurrence.  This same principle applies to all owned personal vehicles and property provided that it is specifically listed on the umbrella policy.

Umbrella Coverage

Umbrella limits are set on a per-occurrence basis which means that there is no aggregate limit on the policy; if one claim costs the umbrella policy $400,000, then a subsequent claim would still be covered up to the policy limit.  A common umbrella policy limit is $1,000,000 in coverage and can be increased depending on the potential for large losses (bridge construction, building design, etc.).  For personal policies, the million dollars in coverage can cost a few hundred dollars per year, but is dependent on where you live, how many people are covered under the umbrella, how many vehicles are included, and other factors.  Business umbrella policies have a wider range of premiums due to the differences between industries, delivery services, commercial auto coverage, number of employees, and many other properties of the business.  Given this, a million dollars in coverage may cost anywhere from a few hundred to up over a thousand dollars per year.

In general, an umbrella policy is a relatively inexpensive way to guard against a major financial loss and should be seriously considered when you or your company’s insurance needs are being assessed.  As always, talk to your agent when considering any additions or changes to your insurance coverage plan.

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