CABOR Asks: “What’s Covered by Umbrella Insurance?”
Homeowners can better guard against liability claims by knowing what is covered by umbrella insurance and what is not, according to Joanne Zettl, Chairwoman of the Cleveland Area Board of REALTORS® (CABOR).
Homeowners insurance protects you if, say, a fire burns your house to the ground. You also need to think about protecting your home against something equally dangerous: a lawsuit. If a houseguest slips in the bathtub, you could get sued. Lose the lawsuit and you could lose all of your assets, including your home.
Umbrella insurance is designed to take over when your homeowners insurance reaches its liability limits. The key to making a decision about whether to purchase an umbrella policy is understanding what is covered by umbrella insurance and, equally importantly, what is not.
Umbrella insurance: What’s covered?
Increasing the liability limits on your homeowners insurance can help, but homeowner liability extends beyond the property line. An idle remark can get you sued for slander. A car accident can land you in court. Umbrella insurance offers the advantage of extending the liability protection on your home and auto policies.
Items generally covered in an umbrella policy include:
- Personal injury or property damage caused by you, members of your family, or hazards on your property for which you are legally liable. This includes what are called “attractive nuisances” such as swimming pools and trampolines.
- Personal liability coverage for occurrences that take place off your premises. For example, if your dog bites a neighbor.
- An additional layer of protection for your vehicles, beyond your auto insurance.
- Protection against slander, libel, wrongful eviction, or false arrest.
- Lawyer fees when you have to defend yourself.
Umbrella insurance: What’s excluded?
While umbrella insurance is comprehensive, there are some exclusions under most policies:
- Damages expected or intended by the insured.
- Liability arising from certain exotic vehicles, such as aircraft and jet skis. (Snowmobiles and golf carts usually are covered.)
- Damages to your own property. (Depending on how these were caused, your standard homeowner policy may cover these.)
- Other key exclusions for typical umbrella policies involve home business activities. Riders, costing about $300 to $400 a year, are available for small home-based businesses.
- People working on your property normally are not covered either. How you should handle them depends on their status? Workers employed by a business, such as landscapers or gutter cleaners, should carry their own insurance. Check before hiring them.
- Full-time domestic employees, such as housekeepers and nannies, are treated differently. They aren’t likely to have their own insurance and may not be covered under yours either. If your full-time nanny falls down rickety basement steps, you probably are not covered, even if you pay her “off the books” in cash. Ask your insurer about a special rider.
Tally your liability needs
Before you shop around for additional liability coverage, determine how much you already have. Most homeowners insurance comes with liability protection, but it is usually capped in the $100,000 to $300,000 range. If you own a very modest home and have few other assets, then that may be sufficient.
Most homeowners, however, require more. Even $300,000 can disappear quickly in the face of a major lawsuit. The median home price in 2012 was $173,500. Add to that, the value of your personal possessions like jewelry, cars, boats, vacation homes, rental properties, and savings, and the assets you need to protect probably exceed the limit of your homeowner policy. You can even be forced to give up a portion of your future income.
When looking into umbrella insurance, be sure to check with your current home and auto insurers, since many insurers offer multi-policy discounts. An umbrella policy, which typically costs about $300 a year for $1 million of coverage, can usually be issued in a couple of hours, unless red flags come up such as a poor insurance score or an extensive history of home and auto claims.
And remember, when it is time to sell or buy a new home, contact a REALTOR® with the Cleveland Area Board of REALTORS®. They are the experts and can help you through the real estate process.