Personal Umbrella Policies: What You Need To Know
A Personal Umbrella policy is the best and least expensive way to purchase high limits of liability protection. However, this is one of the least understood policies by the public.
What Does an Umbrella Policy Cover?
An umbrella is a liability policy; and it is an excess liability policy. That means that it provides you with liability coverage in excess of the protection you have from another liability policy. We call the other policies the “underlying” coverage. Here is how it works…
Here, the insured has a Homeowners Policy with a liability limit of $300,000, a Personal Automobile Policy with liability limits of $500,000, a Boat Policy with liability limits of $500,000, and an ATV Policy for a quad with liability limits of $500,000. Then the insured has an Umbrella Policy with a limit of $1,000,000.
If the insured is involved in an automobile accident and a lawsuit is filed against the insured, the total coverage provided for the accident is $1,500,000 with the first $500,000 of limit coming from the Automobile Policy and the next $1,000,000 of limit coming from the Umbrella Policy. An Umbrella Policy does not provide coverage for judgements or settlements against the insured until the underlying policy limits have been exhausted.
The Underlying Policies
Each insurance company will have their own guidelines for the minimum limits that the insured must have on the underlying policies to be eligible to purchase an Umbrella Policy. There are two approaches that we see in these policies to address maintenance of the underlying limits.
Blanket Limits Approach
In these policies, the policy language outlines the minimum limits that you must have on the underlying policies without specifically naming your individual policies.
Named Underlying Policy Approach
In these policies, the insurance agreement specifically names the policy to which the Umbrella Policy attaches as an underlying policy. These policies also list the minimum limits that you must have for each type of policy.
What Happens If You Don't Maintain the Underlying Policy?
If you do not maintain the underlying policy, there is a penalty. If you drop the coverage altogether, the penalty could be the imposition of a retention (deductible) of the required minimum limit outlined in the policy or the elimination of coverage under the umbrella for that exposure. Either of these penalties is quite severe.
If you maintain the coverage, but do not have the limit required or specifically named in the policy, the policy may eliminate umbrella coverage until the required limits have been met. This is the creation of a deductible.
For example, if the insured renews their boat policy with a $300,000 limit rather than the required and named limit of $500,000 and then has a loss – the Umbrella Policy will not start coverage until the full required limit has been paid out. Here, that creates a $200,000 deductible for the insured before the Umbrella Policy will address the claim.
Expand Your Personal Coverage
It's important that you have the right amount of coverage for your personal lines of insurance. Without it, you can see yourself spending out of pocket, which could cause debt or other situations you'd rather avoid. For this reason, we hope you will consider a Personal Umbrella policy.
Contact us for more information or to move forward with this type of policy.
What Items Fall Under Special Property?
There are many categories of property that have special limitations under your Homeowner Policy. Often, these items that have extremely limited coverage are among your most valuable items in terms of cost or in terms of sentimental value. Let’s discuss what property is affected by these limitations and how the coverage is limited.
Limited By Value
The bulk of the items that final into the Special Property category are limited under the policy coverage by value. In other words, they are covered by all the same perils to loss as any other personal property that you own, but are limited in how much the policy will pay for the item. The actual dollar limit varies depending on the policy and insurance company, but in all cases, the dollar limit is probably lower than the actual value or cost to replace the item.
Examples of property that fall into this limited by value situation include:
- Money, banknotes, bullion, gold, silver, coins, medals, scrip, stored value cards, and smart cards.
- Securities, accounts, deeds, evidence of debt, letters of credit, notes, manuscripts, personal records, passports, tickets, and stamps.
- Watercraft of all types, including their trailers, furnishings, equipment, and outboard engines or motors.
- Trailers and semi-trailers not used with watercraft.
- Property on or off the residence premises used primarily for business purposes.
- Electronic apparatus and accessories while in or upon a motor vehicle.
Limited By Perils
A smaller group of items that fall into the Special Property category are limited under the policy for the perils of theft, misplacing (sometimes called mysterious disappearance), or losing for a token dollar limit. Of course, for the items listed, theft is the most expected cause of loss for the policyholder.
Examples of property that is limited by peril include:
- Jewelry, watches, furs, precious and semi-precious stones.
- Silverware, silver-plated ware, goldware, gold-plated ware, and pewterware.
- Firearms and related equipment.
Other Potential Problems
You may own other personal property that is not technically limited by peril or value that deserves special treatment as well. For example, antiques are covered under your homeowner policy, but not very well.
The problem is that the loss settlement basis in the policy simply does not work well for antiques. In the loss settlement provisions, they will not compensate you for the value of the property’s rarity, antiquity, or intrinsic value. This loss settlement problem applies to:
- Antiques
- Collectibles and Collections
- Fine Arts
Other items you own that are subject to perils beyond coverage under the homeowner policy are:
- Musical Equipment used professionally may be limited by the business purposes clause in the policy.
- Camera Equipment that you expose to unusual perils may not be covered under the policy. It may surprise you to know that “my camera fell off the cliff while I was mountain climbing” is not always covered.
- High end sports equipment, such as skis and golf clubs you check when flying, may not be covered for breakage due to rough handling.
What's The Solution?
Once you identify the personal property items you own that may be affected by these limitations in coverage or valuation within your homeowner policy, we can recommend the best solution for you.
We have several options for you to consider.
Do You Have To Have Appraisals For Special Property?
You do not have to get appraisals for most of the property items that we have mentioned in this article. While this may vary among different insurance carriers, you typically only need an appraisal for jewelry. The appraisal should be current (less than five years) and include a detailed description of the piece.
It can be expensive to get appraisals and you may be hesitant to leave a jewelry item overnight with an appraiser. We have an excellent contact locally for our clients who will not hold your item overnight and have a flat rate per item (rather than charging a percentage of the value of the item). For most all other special property, a descriptive list with a value is all you need to get special coverage.
Personal Articles Floater
For most of the various properties we have discussed, adding specific coverage for each item through a personal articles floater or endorsement will solve the coverage and valuation issues we have outlined.
Coverage
When insured specifically on the policy, your special property item is now covered for “special perils”, which is the broadest coverage that they offer. In short, this means that all direct physical loss is covered unless they specifically excluded it in the policy. These perils include theft and mysterious disappearance or loss, which is especially important for jewelry and watches.
Valuation
When listing items to be covered on a personal articles floater or endorsement, you select a value for the insurance. For a few types of property (jewelry), the insurance company may ask for an appraisal. For most types of property, the insurance company assumes that if you are the collector, you have reasonable expertise and know the value of the item.
Loss Settlement
The loss settlement for a personal articles floater or endorsement is typically based on the value listed or the amount needed to replace the item with similar goods. If you over-insure an item, you may not get the full value listed on the policy, but they will compensate you with an amount needed to replace the item.
Special Form - HO 5
Another effective way to make sure you have the best coverage for your personal property is to purchase an HO-5 version of the homeowner policy rather than the standard HO-3 version. Some carriers have an endorsement package that is equivalent to an HO-5.
When you do this, you change the perils that you are insuring from Broad Form Perils (named perils) to Special Perils (named exclusions). The HO-5 is much broader and is an inexpensive upgrade to your policy.
Insure Your Special Property With G.S. Newborn & Associates
At G. S. Newborn & Associates, we want you to have the coverage that you need, and we want you to understand the personal coverage that you buy.
Contact us if you have questions on your special property items.
- Susan Newborn, ACSR
Personal Lines Manager