So, you have all your ducks in a row and all your bases covered with insurance policies for your house, boat, car, business, and so on. However, you feel like some things in your life need an extra layer of protection, just in case. Depending on the type of extra coverage you are looking for and your unique insurance needs, you can choose either a personal umbrella insurance policy or an excess liability policy. These two types of insurance serve the same function of providing above-and-beyond normal policy coverage. but have several qualities that make them different as well. Let’s break down the details of these two types of extra insurance policies.
What is personal umbrella insurance, you ask? Well, it is kind of like an umbrella. It is a type of insurance policy that is meant to protect you and your family from high cost or even economically devastating liability claims or lawsuits. In the event that your regular insurance policy limits for your home, your automobile, etc. leave you to pay out of pocket for a portion of the expenses in the aftermath of an accident, your umbrella policy would come in to cover whatever your regular policy does not cover. The umbrella policy is there to cover you from outrageous expenses, lawsuits, or damages that you could be faced with in extreme situations. For example, if you cause an accident and the other driver hurts his arm, your regular auto insurance policy would cover the expenses of repairs and medical fees for you and the other driver, up to the amount of your policy limit. But what if the other driver is a dentist? Severe injury to his arm could keep him out of work for a long time and he could sue you for his inability to work, leaving you with debts way over your auto policy limit. At this point, your umbrella policy would kick in and cover any extra expenses above and beyond what your car insurance company will pay.
Here are some examples of what a personal umbrella policy would cover if you are faced with costs that exceed your underlying policy limit:
- Attorney fees
- Personal injury
- Property damage
So, if an umbrella policy is supposed to protect you from anything above and beyond what your existing insurance policies don’t cover, is there anything that it would not cover? The answer is, yes. A personal umbrella insurance policy typically does not cover:
- Personal property – The purpose of the umbrella policy is to protect you if you are responsible for the damage of another person’s property, not your own. An umbrella policy would only cover the expenses of a third party’s property that you are responsible for damaging, even if your own property is also damaged in the accident. Of course, the umbrella policy would only come into play if your underlying policy’s limit is reached.
- Purposeful actions or crimes – If another person’s property is damaged or a person is injured intentionally, a personal umbrella policy will not cover the costs. Also, if the liability expenses are a result of the policy holder’s criminal activity, an umbrella policy will not provide extra coverage.
- Contracts – If you are being sued by someone that you have entered into a written or verbal contract with, a personal umbrella policy usually does not cover expenses having to do with lawsuits involving contracts.
An excess liability policy is similar to an umbrella policy but is more restrictive. To be clear, the main difference between the two is as follows:
- An umbrella policy is an independent policy that serves to cover expenses above an existing policy limit and often fills in the gaps of an existing policy to cover expenses that are normally excluded.
- An excess liability policy is basically an extension of an existing policy’s limit.
An excess liability policy has the same limitations that the underlying policy has, it just provides extra liability coverage if you are faced with paying costs that are above your policy limit. Therefore, if you are responsible for damage or losses that are not covered with your regular insurance policy, you will not be covered by your extra liability policy either.
Between a personal umbrella policy and an excess liability policy, what’s the best choice? That all depends on your unique situation and the type of coverage that you need. A personal umbrella policy provides broader coverage with less limitations, but that also makes it the more expensive choice. However, this type of policy can give you the peace of mind that all your bases are covered, and can save you from financial ruin even in the wake of the most unexpected events. If you are looking for some extra coverage without paying a high price, or you need extra coverage for certain specific things, then extra liability is the right choice for you.