It can be quite hard to keep track of the different types of insurance. Even worse, each type has different kinds of plans which just add to the general confusion. There are two main kinds of insurance types: primary and supplemental.
Business Dictionary describes primary insurance as “Property or liability insurance policy that covers up to the policy’s limit (usually after deductibles) whether or not other policies cover the same risk.” In a nutshell, primary insurance is the insurance that is primarily responsible for the coverage plan you signed up for.
Supplemental insurance, on the other hand, is an insurance plan that covers your expenses and liabilities after your primary insurance has been exhausted. Say you injure someone with your car. The medical expenses you’re required to pay for exceed the amount that is covered by your primary liability auto insurance. In this case, having a supplemental insurance plan will pay for those expenses not covered by your primary plan.
Umbrella insurance is a type of supplemental insurance. It adds an extra layer of coverage over and above the insurance plans you already have. Most umbrella insurance plans provide extra coverage for auto, home or renters insurance policies. Umbrella insurance serves two main functions:
- It provides extra coverage for when your primary insurance policy has been exhausted.
- It provides coverage for those claims usually excluded from other liability insurance policies, such as claims of libel or slander.
Usually, umbrella insurance policies provide coverage for:
- Medical costs incurred due to other people’s injuries
- Compensation of any property damaged by you
- Certain lawsuits
- Claims of libel or slander
If you are personally liable for any injury or damage and are required to pay compensation, you would have to rely on your primary insurance policies. But if the compensation is beyond the amount covered by your insurance, or if your insurance plan doesn’t cover the liability you’re required to compensate, you would have to sell personal assets to raise enough money to be able to pay compensation. This is why umbrella insurance is important. It protects you from unforeseen financial problems in the case of a liability claim.
Personal liability isn’t the only liability covered by umbrella insurance. Some umbrella insurance policies also provide coverage for professional liability. Professional liability is when your professional advice or consultation leads to a loss for your client. In such a case, your client might decide to sue you. Professional liability umbrella insurance will cover your expenses and costs. This is why umbrella insurance is fast becoming popular in professions like investors and financial planners.
Furthermore, some umbrella insurance policies also provide coverage for claims of malpractice. If you are in the field of medicine or law, you probably already have a comprehensive malpractice insurance policy. Umbrella insurance will provide additional insurance, as written above. Furthermore, if you have to face a lawsuit over a professional liability or malpractice claims, umbrella insurance will cover the costs of your legal defense even if you are not found liable.
If you are a landlord, an umbrella insurance policy is a good strategy. As a landlord, you are responsible for making sure that your property is safe for your tenants and guests. An umbrella policy will most likely protect you in several different scenarios, such as:
- A third party sues you for damages your tenants cause
- A visitor is injured in a fall due to a broken step or handrail
- A guest is injured in your workout or pool facilities
- You neglect to change the locks on a unit and a former resident with a key burglarizes the apartment
If you have a substantial amount of personal net worth, you may want to invest in umbrella insurance to protect yourself. Make sure you find the right coverage by consulting with a member agent in our network. Independent agents can customize your coverage for your unique needs.
Now that we have talked about why umbrella insurance is important, for whom, and what exactly it covers; let us talk about the technical details.
First of all, how much does an umbrella insurance policy cost? Coverage for an umbrella policy typically starts in the rage of $150-$200 for a $1 million policy. Your premium will increase if you decide to increase coverage. However, getting twice the amount of coverage and increasing the policy limit to $2 million will not usually double the cost of your premium.
Another question that comes up is whether umbrella insurance is tax deductible. This depends on the type of coverage. Personal liability insurance policy isn’t tax deductible. On the other hand, if you own umbrella insurance to supplement your business liability insurance policies, it can be tax deductible. Umbrella insurance for rental properties is a bit of a grey area. Owning rental properties is technically a business, but you can include those properties under a personal umbrella policy. In that case, you may be able to deduct a portion of your premiums on your taxes.
Now, if you are considering getting umbrella insurance, you are probably wondering about the type, as well as the amount, of coverage you should get. In order to be able to decide that, you would have to consider three things:
- The value of your assets. These can range from your personal home to rental properties to auto vehicles to high-value personal possessions to investments. The higher the value of the assets you have to protect, the higher should be the limits of the insurance policy you choose.
- The risks you face. Think about what risks you are most likely to face. Do you own a trucking business? Do you have to regularly commute long distances by car? Do you work in professions like law or medicine or financial planning where you run the risk of facing lawsuits over malpractice or professional liability claims? The coverage you choose should be according to your risks.
- Potential loss of future income. Lawsuits can result in the loss of both current assets and future income. To protect yourself against long-term consequences, choose the coverage that mitigates your risks.
Hopefully this article successfully answered your questions about what umbrella insurance is, why it is important, what it covers, as well as what you should consider before getting an umbrella insurance policy.