Thursday, August 05 2010
Homeowners can better guard against liability claims by knowing what’s covered by umbrella insurance and what isn’t.
Homeowners insurance protects you if, say, a fire burns your house to the ground. That’s a start. But 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’s covered by umbrella insurance and, equally importantly, what isn’t.
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.
Umbrella insurance: What’s excluded
While umbrella insurance is comprehensive, there are some exclusions, according to Travelers, such as:
Other key exclusions for typical umbrella policies involve business activities. Bob Gustafson, a certified financial planner in Marlborough, Mass., offers the example of a van driver delivering yarn to a homeowner who makes extra money knitting sweaters and selling them on eBay. This is a business, and your home/umbrella policies probably won’t cover you if the van driver gets hurt on your icy driveway. Riders, costing about $300 to $400 a year, are available for small home-based businesses.
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’s 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.
It’s worth noting that some states have so-called homestead laws that can protect homes from creditors. There are many exceptions to the rules, however, so check with an attorney.