What Is An Umbrella Homeowners Insurance Policy?

Have you ever been caught out in a rainstorm, far away from home and without an umbrella? When life gets dark and stormy, there is a type of insurance coverage intended to shield policyholders from even the most inclement of financial conditions. The monetary shields we're speaking of are premium umbrella insurance coverage policies. In case you were wondering, we've got the scoop on just what umbrella coverage is, how exactly it works and if the average policyholder really needs to look into purchasing this premium policy:

What is an umbrella homeowners insurance policy?
Umbrella insurance coverage acts as a type of extreme-case scenario survival kit. The purpose behind an umbrella policy is to provide total financial coverage past the point when your standard plan's liability limits have been reached. In essence, umbrella insurance policies were established to help shelter their holder from any financial fallout in the wake of an accident. 

"$1 million of typical umbrella coverage policies will cost anywhere from $150 to $300 per year."

You can get personalized umbrella coverage policies not only for homeowners, but renters, condo or automobile insurance as well. According to the Insurance Information Institute, $1 million of typical umbrella coverage policies will cost anywhere from $150 to $300 per year. Each additional million dollars in umbrella coverage, beyond the initial $1 million, will typically cost anywhere from $50 to $75 per year.   

How does umbrella coverage work?
Ever heard of a backup power generator? Perhaps you've seen "In case of fire, break glass" written across a fire extinguisher's case. Umbrella insurance coverage works in a similar fashion to both of these common examples. 

When a mishap occurs to, say, a party guest attending your backyard bonfire, each member of your family should already enjoy worry-free liability coverage under your standard homeowners insurance policy. However, this calamity hasn't struck your property or a member of your family; it has struck your party guest. In a freak accident, a spark from your fire has ignited Tiffany White's expensive, antique stereo equipment. Since you were tending to the fire when the event took place, you are found liable and your insurance policy will pay only up to a certain point of the damages owed. However, according to Bankrate, a typical homeowners insurance policy only covers around $100,000 to $300,000 in liability. Your party guest's sound equipment was valued in excess of your coverage, and total close to $750,000: Clearly, this outstanding amount is far and above your homeowners liability coverage. 

The term "excessive liability" refers to when there are costs to be dealt with after an insurance claim has been filed and liability costs have been maxed out. In the case of the disgruntled party guest, more than $450,000 would need to be paid out of pocket from the liable homeowner, assuming that their liability maximum was $300,000. This excessive amount comes in addition to any legal fees they may have accumulated fighting the incident in court. Excessive liability is exactly what umbrella coverage policies were created to cover. Umbrella policies kick in after liability insurance has done its duty and can ultimately save those made liable from having to pay a small fortune.

How do I know how much coverage I'll need?
Umbrella coverage policies are not just for the 1 percent. While premium coverage may be more commonly found among those who have accumulated greater number of assets, $1 million in excess liabilities are not uncommon totals. In fact, more than 13 percent of personal injury liability settlements ended with a price tag of over $1 million, according to Forbes via the Jury Verdict Research organization. 

The scary part is that if you don't have excessive liability coverage and a legal suit is lost as the result of an accident, not only your finances but your assets and future earnings could become effectively seized by the courts. This means you could be forking up your paycheck for years to come, in order to pay damages for an accident long past. 

For an extra few hundred dollars per year, anyone can purchase premium umbrella coverage for up to $1 million in liabilities. If you can't afford to upgrade your coverage outright, one potential course of action would be to increase your car and homeowners insurance deductibles up to $1,000. This will most likely cause you to pay more out-of-pocket expenses for small automobile accidents and fender benders, but most people settle these damages without filing claims on their insurance to avoid an increase in premium yearly costs. Every policy is different, but if you're looking to come up with extra cash for more complete coverage, this tactic might be an appropriate course of action. 

Check out CoverHound for quick comparisons of homeowners, automobile and motorcycle insurance policies.