Personal Umbrella Insurance



Litigation is part of the modern society where people will sue each other for serious breach of contract or for harm resulting from negligent acts. Without insurance, many people face the possibility of having wealth and saving or income confiscated to pay for the cost of legal allegations against them. The personal umbrella liability insurance policy significantly make the protection of people's wealth happen. Despite that, the personal umbrella policy still has limitations and exclusions and does not offer complete liability protection for every scenarios that might face a person.

Non Standardized Personal Umbrella Insurance policies

Personal umbrella contracts are not standardized contracts. Unlike auto insurance and home insurance, there was never a standard personal umbrella liability policy. Each and every insurance company offering personal umbrella coverage produced its own unique contract policy. The scenario has changed somehow with the modern changes made on the ISO insurance contracts.

At the same time insurance companies can nowadays adopt the standardized ISO insurance contract, the vast majority of insurance companies continue to utilize their own forms and contracts.  For most customers this was confusing and, unfortunately, this has caused  great disparities amongst personal umbrella insurance contracts. As a result, the following discussion is general in nature. However, it is important to remember that the appropriate  policy for a particular individual is the one that best covers his or her specific loss exposures, and a thorough evaluation of policies is often appropriate.


General Nature of Personal Umbrella Insurance Contracts

Personal umbrella contracts are designed  primarily to provide protection for catastrophic liability claims or judgments.  Limits available for personal umbrella contract range from $1 to $10 million. Personal umbrella offers protection for bodily injury, property damage liability, as well as personal injury liability.

Requirements for Personal Umbrella Insurance

Personal umbrella policies require  the that the insured people carry certain underlying liability coverages, with specific minimum amount. The underlying include auto liability insurance, watercraft insurance, and a homeowners or other policy. When a claim is filed under an underlying contract, the umbrella policy will kick in only after the limits of the underlying contract  are reached. The umbrella insurance contract is an excess policy and will pay up to its limits so that the insured person actually has an amount of protection equal to the total of the limits of the umbrella contract and the underlying policy.

For example, George has a $1 million umbrella contract and an auto liability policy of the required underlying limit of $100,000  per person. If a legal judgment of $350,000 is brought against him by someone injured by an auto crash caused by George, the underlying car policy will pay $100,000 and the umbrella contract will pay the balance $250,000.

In the events when  an underlying policy does not cover a particular claim that is not excluded from a umbrella contract, the umbrella contract becomes the primary insurance policy, and the umbrella insurer becomes the primary insurer. In this case the umbrella insurer will cover the entire claim subject to a self-insured retention (SIR). The SIR is similar to to a deductible in auto insurance. It necessitate the insured person to pay the first  part of the loss—something like $500, before the insurance company commence paying. SIR amounts do vary from a company to another by company and can be $250 or $2,500 or even higher (higher SIR amounts mean lower premiums). The SIR will not apply to losses covered by underlying contracts.

Drop Down Coverage

Drop down coverage refers to the situation when an umbrella insurance contract covers a loss not covered by underlying insurance. This is when the umbrella become primary, not excess. In actuality, the umbrella protection drops down to cover the all of the claim, excluding the SIR, instead of acting as excess insurance.

Besides paying liability losses, most umbrella contract offer extra protection and pay defense expenses that are not covered by underlying contract. The umbrella contracts also provide various other supplementary coverages such as premiums on appeal bonds, expenses for lost wages incurred at the company’s request, etc. Some jurisdictions necessitate that the insured person be given the right to extend umbrella coverage uninsured and underinsured motorists insurance coverage!
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