As it tends to be with most things in life, interpretation does not always coincide with reality. Unsurprisingly, this principle could not be more true for what the insurance industry would call, “umbrella policies.” For many seeking to attain liability coverage, umbrella coverage tends to draw the eye of the consumer as it appears to have all of the coverage one could hope for. What we will see, however, is that the wording of this coverage can be rather misleading.
Simply put, umbrella insurance is a form of excess liability insurance that will cover risks such as personal liability, bodily injury, or property damage to a third party. To properly understand the term umbrella, it is helpful to put it in the context of excess liability limits. In other words, the umbrella functions as an excess limit; therefore, increasing your limit of liability.
Most insurance companies require minimum limits of liability before agreeing to add or endorse umbrella coverage. To illustrate this point, an auto insurance company may have underwriting guidelines that require a policyholder to carry a minimum of $500,000 limit before they will agree to add an umbrella policy.
Umbrella policies are one of the most cost-effective ways to bring value and protection to your risk. It’s not uncommon for a one million umbrella limit to run less than $500. Underwriting factors, including but not limited to loss history will play a role in the insurance company’s pricing model.
While almost everyone could benefit from extended coverage, some risk factors may warrant a greater need for seeking coverage. For example, possession of vacant land, pools, trampolines, recreational vehicles, and parties can all increase the chance of bodily injury taking place. More specifically, let’s say a neighbor comes into your home and your dog becomes aggressive, causing injury. If the injury results in medical expenses beyond the limit provided by your homeowners insurance, you would may be responsible for covering the cost and/or litigation out of pocket. In this case, umbrella insurance may help finance the risk and save you from financial hardship.
In the insurance world, there is ultimately no such thing as a policy that covers “everything.” With that being said, there is no right price for the wrong coverage, which is why there is always value in discussing your insurance needs with our team at HAWK Advisers.