Umbrella Liability Policy

An umbrella liability policy is the broadest, highest limit coverage available to homeowners. It is called a "stand alone" policy because it is not attached to any other policy although it does cover or enhance other policies, such as homeowners liability policies and motor vehicle insurance, providing a very substantial amount of additional protection for the homeowner, for a fairly reasonable premium.

An umbrella policy can pay one million dollars, or three or five million or more, but always a predetermined amount, on top of the amount that a homeowner's other policies such as pool insurance will pay, for claims made against the homeowner o members of the homeowners family. It is a good option for those homeowners who need more extensive coverage because there is such a great risk of injury on their property. In the same way that many people mistakenly assume that taking inventory of the general contents of a home for insurance purposes is something necessary only for those persons who have possessions of extraordinary value, so it is that many people are also of the opinion that an umbrella policy can only be useful for very wealthy persons.

If, however, the home has a swimming pool, for example, and the owners entertain frequently, or if there are children or teenagers in the family whose friends use the pool, the homeowner would be very well advised to purchase an umbrella policy to cover the family in the eventuality of a serious accident. An umbrella policy can also be used to cover the expenses from a lawsuit following a car accident in which the homeowner was at fault. In cases where someone dies or is seriously hurt, there will be medical costs and legal fees, and very possibly, lawsuits and judgments that could very easily derail a family's most sound and successful financial plan.

Umbrella Policy Costs

The additional amount by which an umbrella policy raises the total insurance premiums of a homeowner can be a fair amount in actual terms, but will be quite small relative to the amount of coverage it provides and the peace of mind it confers. A typical simple umbrella policy will probably incorporate homeowners coverage and motor vehicle insurance. The deductibles for either of these can be quite low, but even at their highest, will not come very close to the deductible on an umbrella policy.

The deductible required on an umbrella policy is often equal to the homeowners and automobile liability coverage that homeowner already possesses. Let's say the homeowner is seeking to purchase an umbrella policy in the amount of two million dollars. Let us also say that the family homeowners liability coverage is four hundred and fifty thousand dollars. Then the carrier carrying the umbrella policy will require that the deductible on that policy be equal to four hundred and fifty dollars.

The umbrella policy only kicks in after the limits of the other coverage have been exhausted. So, if there is a swimming pool accident, the homeowners insurance will be tapped to provide coverage for the first four hundred and fifty thousand dollars minus the five thousand dollars or so which is the deductible on the homeowners liability policy. The umbrella liability policy will then be tapped to cover the remaining fees and expenses up to two million dollars. The homeowner will, in this example, end up paying out of pocket, only the five thousand dollar deductible required on the homeowner's policy. The homeowners liability coverage itself will serve as the deductible payment of four hundred and fifty thousand dollars. In this way the homeowner is able to resolve most liabilities and remain financially viable.

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