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McQuiston: Common Misconceptions About Personal Umbrella Policy

on October 10, 2017 - 6:14am
The Jemez Agency
One thing I’ve learned over the years is there are several common misconceptions regarding personal umbrella insurance policies.
And I can certainly empathize with these folks since the term “umbrella” can be interpreted a number of ways. An umbrella policy is actually excess liability insurance. Here are some of the more common misconceptions and the truth behind them.
Misconception #1: “I have an umbrella policy. I don't need to worry about insuring my jewelry or fine art.”
Unfortunately, it does not. For starters, a personal umbrella policy is a liability policy, meaning it doesn’t cover any type of physical property such as your home, your home’s contents, or your autos. This is probably the most common misunderstanding that I’ve heard, especially when the topic of jewelry, fine arts, or other valuables comes up. Many people think an umbrella policy will cover everything, especially when it comes to property.
Misconception #2: “This is just extra liability protection that goes over my auto policy, right?”
Yes, but in reality, it provides a lot more than just this type of protection. An umbrella policy will provide excess liability over your auto policy along with homeowner personal liability, watercraft liability, and liability associated with owning rental properties.
Misconception #3: “I’m already paying a ton for auto insurance now that my 16-year-old is driving. Do I really need to consider paying for even more insurance?”
Yes. Absolutely. Some of the worst claims I have seen over the years involved youthful drivers and having the extra layer of protection made a tremendous difference. I have also seen auto claims involving adult drivers where serious injuries and/or deaths were involved and the umbrella policy helped our clients avoid having to pay settlements directly out of their own pocket.
Misconception #4: “An Umbrella policy is expensive.”
Actually, it’s not when you consider the amount of protection it provides. For example, a $1,000,000 umbrella policy for two adult drivers who own a home and two cars can be bought for about $200 a year.
Misconception #5: "I can carry low limits of auto insurance now that I have an umbrella policy."
Nope. Umbrella policies generally require you to carry high limits of auto and home liability before they will agree to insure you. Many of you are probably insuring yourselves at the high limits today, but if not, you would be required to increase these limits before an umbrella policy can be issued.
Misconception #6: "I don't need to worry about obtaining liability insurance for my home based business."
Wrong, wrong and more wrong. First a personal umbrella policy excludes business activities, including a home based business. Secondly, just because a business is based out of a home, a homeowners policy will probably exclude coverage as well.
The real question is whether you can afford not to have an umbrella policy should you experience a claim. An umbrella policy is a relatively inexpensive way to protect yourself against large claims involving bodily injury and/or property damage to others. Limits start at $1,000,000 and can be bought in additional $1,000,000 increments up to $10,000,000 (or even more in some cases).
Hopefully, this article helped clarify some of the confusion that exists regarding this extremely valuable coverage. Talk to your insurance advisor for additional details.