Insurance is a necessity of life.

From the policy designed to protect your home and its contents to the automobile coverage protecting your vehicle, there is a wide range of options available to you.

Sometimes, policies can cover more than one aspect, too; for example, you can add additional protection to your homeowner's policy to cover you working from home. However, while you might think you have all the coverage you need, can you be certain? If you are looking for a broader range of protection, an umbrella policy might be a better option.

What is an umbrella insurance policy?

Umbrella policies are a form of personal liability that is designed to cover those claims that might be in excess of your existing policies. This means that in the event of a loss, your primary home or auto insurance will be triggered first, and when the loss exceeds the limits of those policies, the umbrella policy will kick in.

While it might well be that your primary insurance providers offer more coverage than you will need, there are always circumstances that could involve a type of loss not covered. For example, say your newly-licensed child is driving your family car and slides on an icy highway and the resulting accident is a chain reaction that damages several cars and injures multiple drivers. This is an expensive claim, and your existing auto policy might not provide you with enough coverage, meaning you will need to make up for the shortage by selling your personal assets. The additional coverage offered will also extend to handling expenses and the cost of court defense.

Typically, an umbrella insurance policy will be able to provide additional liability coverage for:

  • Personal automobile insurance
  • Homeowners insurance
  • Farmowners insurance
  • Recreational vehicle insurance
  • Watercraft insurance
  • Personal liability

Umbrella insurance vs. Excess coverage: What's the difference?

Although they might sound similar, when it comes to choosing between an umbrella insurance policy or the option of excess coverage, it is important to remember they are different products. A traditional umbrella option will provide you with a broader range of coverage, supplementing any primary policies you might have in place and helping to protect you for less common losses.

Most commonly used to provide additional coverage for things such as personal injury, an umbrella insurance policy can also cover you for hobbies and activities, for example:

  • An in-home hobby of training guard dogs leads to a neighbor being attacked.
  • You publish a newsletter or article online covering local or state politicians and wrongly accuse a state senator of committing a crime.
  • You collect, repair, and restore rare instruments, and you accidentally break someone's instrument.

An umbrella policy will generally provide coverage for any loss that exceeds the primary policy; however, when covering a loss not covered by the primary policy, a Self-Insured Retention (SIR) might apply. This is effectively the amount the policyholder has to pay before the umbrella coverage is activated.

On the other hand, excess insurance coverage will provide the policyholder with bigger limits than what was originally stated on their underlying policy. This means that it does not broaden the areas of coverage listed on the policy, but instead will help to cover more significant losses.

Which is right for you?

If you are looking to ensure you are protected no matter the circumstances, then extending your primary insurance policies is always a good idea. Deciding between an umbrella insurance package or an excess insurance solution can be challenging.

Carefully evaluating your policy wordings will help you to understand the levels of coverage you require, but for the best results, speaking with a professional insurance agent can help you find the perfect solution.

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