When Do You Need Umbrella Insurance?

Umbrella insurance is a specific line that covers claims not covered by other portions of your policy. The term umbrella insurance comes from the way this portion of your policy will cover wide areas not specific to other lines in your coverage. Umbrella insurance is most common for businesses, but you may pursue an umbrella portion to your private insurance policy. Not everyone needs this coverage.

You Have Unique Exposures

The primary reason most businesses or individuals use umbrella lines of coverage is to protect against unique exposures. For example, your geographical area or nature of your business may present you with liability that will exceed the limits of your property, liability or worker's compensation coverage. It can be hard for a business owner to find these exposures in his or her own industry, specifically if the business is young. You may consider using an insurance broker or consultant to advise you on these needs. You can also ask your insurer for sample policies from other businesses in your industry. Typically, your insurer will have a boiler-plate policy you can review to see areas where the umbrella line may be necessary.

You Have Unique Past Claims

Looking over your insurance history is a great way to anticipate what lines you will need in the future. A loss control consultant or analysis can show you where your claims could have been mitigated with better planning or more extensive coverage. If you have had a claim or multiple claims in the past that weren't covered under your current lines, you can consider whether an umbrella line would have covered those claims. Adding an umbrella line to your policy is generally inexpensive if you are already carrying other lines with the company, and covering just one or two extra claims can make the expense well worth it.

You Cannot Cover Claims Out-of-Pocket

Some businesses and individuals will be able to cover a portion of claims out-of-pocket each year. If you have a large amount of discretionary income of savings to cover an unexpected or uncovered claim, it may be best to assume this risk yourself instead of paying additional premium dollars. Ultimately, only you can make this decision based on your financial situation and the potential exposure to liability and damages you have. When your income or savings, business or personal, is not sufficient to cover a unique claim, it is important to make sure your insurance will.

You Need to Meet Requirements

Some states require you carry a certain level of coverage. You may also be a member of an organization that requires you carry limits. Ratings companies will also rate your institution taking into consideration the insurance coverage you maintain. As an individual, your home owner's association may require an umbrella policy. When these external factors dictate your need for an umbrella policy, you do not have the luxury of choosing to not elect one. Checking the requirements you may face in your situation is important before you select your coverage with any insurance line since insurance is mandated by both public and private bodies.


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