The Role Of an Umbrella Insurance Policy

An Umbrella Policy is Full Coverage Insurance

Liability is a big buzzword these days, and there are very few other words that make business people cringe and fearful at the same time. As the world seemingly gets more and more litigious, liability takes on a whole new meaning. These days, there is no predicting what kind of lawsuits will be filed and the amount of money a judge will deem appropriate as a reward for that lawsuit. Because of this, umbrella insurance has become much more common than it has been in the past. Sometimes it is referred to as “Full Coverage Insurance“.

There was a time when umbrella insurance policies were only a luxury of the well-to-do, but that is not quite the story these days. In fact, it has become a norm for organizations, Small Businesses, corporations, and other associations to take out their own individual umbrella insurance policies to fill in any gaps left by other insurance policies.

In short, an umbrella insurance policy is just like a normal insurance policy- in that it protects businesses and individuals from risk- but, it has a much higher liability payout limit. Most regular insurance policies will only agree to cover a person’s liability- also known as risk- up to a certain point, but an umbrella insurance policy lifts the ceiling on that limit. The other defining characteristic of an umbrella insurance policy is that it will cover all types of insurance, from car insurance to home insurance and beyond.

An umbrella insurance policy will add a relatively small additional cost to a normal insurance policy, but- if a person ever finds themselves in a costly litigious situation- it could end up saving you a boatload of money. Some studies done by various insurance companies and professionals have concluded that an umbrella insurance policy can end up saving a person anywhere from $1 million to $5 million if that person does indeed have to go to court for a liability case.

How an Umbrella Insurance Policy Works-

Umbrella insurance is essentially a high deductible version of a normal liability section of an insurance policy with a higher maximum. A simple example of how umbrella insurance works are the case of homeowner’s insurance, the liability portion covers things like when a person gets injured at your home. If he brings you to court due to perceived negligence on you as the homeowner. Liability insurance will cover things like medical bills, rehab therapy, lost wages because of the injury, and tons of other causes and situations. But there is a limit perhaps $250,000 on a typical homeowner’s policy.

But with the cost of medical care today, a serious accident could easily result in medical bills of much more than $250,000 plus you have to remember all the legal fees also have to be paid. So once the liability portion of the homeowner’s insurance is exhausted the umbrella insurance would kick in covering additional expenses up to the umbrella limit of say $1 Million or even $5 Million. Because this extra coverage only kicks in after the regular policy is exhausted coverage costs less because it is less likely to ever be tapped.

Corporate Umbrella Insurance

In comparison to a homeowner, a company has considerably more risk. They have more strangers on their property, more dangerous activities happening, more opportunity for negligence, and more people assuming that they have deep pockets. And that is why it makes sense for any organization, corporation, or any other association to have some kind of umbrella policy to cover large claims and any other gaps in insurance coverage.

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This article was written by Danny Katsopolus

Photo credit: Umbrella by artsrefugees on flickr