Exploring Liability Limits: Is Umbrella Insurance Right for You?

When it rains… sometimes it can pour, and if it does, an Umbrella Policy will be a welcomed necessity.

Personal Umbrella Insurance:

Frequently referred to as an Excess Liability Policy, this is liability insurance specifically for larger claims that surpass personal policy limits. In other words, this is coverage for serious financial losses.

Personal Umbrella Insurance can provide more liability coverage for homeowners, auto, renters, watercraft, and other personal policies. It’s favored for offering broader coverage that your primary policies may not cover, like slander and even worldwide travel.

Understanding Policy Limits:

To fully appreciate Umbrella Insurance, it’s important to understand policy limits, or the maximum amount of money an insurance company will pay toward a covered claim. Depending on policy language there are two ways an insurance company can organize these limits:

1. Split Limit: These policies divide maximum payout amongst specific claim components. Because Split Limits indicate narrower coverage, an Umbrella Policy extends your protection.
2. Combined Single Limit (CSL): This type of policy lumps all claim components together, and simply pays until your stated limit amount. Even though a CSL provides broader coverage, it doesn’t mean it’s enough. An Umbrella Policy strengthens your protection.

Umbrella coverage usually starts at $1 million, increasing in increments of $1 million in excess liability. Your total liability protection will then reflect both primary and umbrella policy limits. For example, if your primary Homeowner’s Policy has a CSL limit of $400,000 and you purchase a $1 million Umbrella Policy, you will have a combined coverage of $1.4 million.

Pro Tip: Umbrella Insurance kicks in at certain coverage levels on the underlying policies. When an underlying coverage limit is too low to meet the umbrella minimum, you have a gap, which can create real problems. Some carriers have controls in their quoting systems to limit these gaps, but others don’t.  At Heritage, we “mind the gaps” for clients so that they have seamless coverage.

The Ins & Outs of Umbrella Insurance:

In general, Umbrella Insurance provides heftier, broader, more flexible coverage for a relatively inexpensive price tag. However, there are certain claims that simply cannot be covered, including damage to your own property, intentional harm, signed liability contracts, and others. It’s important to always have an open dialog with your insurance advisor so they can help pinpoint any coverage gaps.

Commercial Umbrella Insurance:

If you’re a business owner, you can invest in Commercial Umbrella Insurance. Similar to a Personal Umbrella, it adds more coverage above and beyond your limits but for business liabilities. It’s important to note that if you conduct business activities from your home, and have Personal Umbrella Insurance, you will not be covered by your personal policy. You will need Commercial Umbrella Insurance.

Is Umbrella Insurance Right for You?

Umbrella Insurance provides peace of mind, especially if you find yourself facing a very expensive liability claim. Ultimately, you should have liability limits that properly protect all your assets. If you have growing assets, people may try to take advantage that, so the more assets, the more coverage you will need.

This is a great conversation to have with your financial advisor! Check out this resource specifically for financial advisors, and bring it to your next meeting.

We will always advocate for personalized value. Insurance should be more than a sale, it involves your livelihood. If you’re considering Umbrella Insurance, reach out today for an objective risk management assessment.

Connect With an Expert