The umbrella has become a staple metaphor for coverage in our society. Travelers, an insurance company, went so far as to adopt the symbol as their brand. This article examines the Umbrella Policy as an insurance product.
Purpose of the Increasing Limits:
Limits are typically increased in million-dollar increments. The primary reason to increase limits is to acquire needed limits to appropriately address potential losses. Less commonly considered is the fact that it may encourage the insurance company to defend rather than pay the loss in some scenarios.
Say a claimant in a trip and fall suit has unresolved neck injuries. If the individual or business has an umbrella in place, the insurance company is looking at a potentially large loss. Therefore, to control the loss they may choose to defend the insured in court – resulting in a better outcome for the insured.
Understanding the Difference: Umbrella vs Extended Liability
Extending limits of insurance can be done with 2 types of policies: An Umbrella Policy or an Extended Liability policy. Both require underlying coverage to exist, however, the umbrella is more encompassing.
An umbrella policy extends limits and provides “drop down coverage” where gaps may exist – effectively broadening the coverage. For this reason, insurance companies require the underlying coverage to be complete and in place before placing an umbrella.
The Extended Liability policy is easier to obtain, and only extends coverage where coverage already exists. There is NO drop down or gap fill activity in an extended liability. Businesses/individuals who are in high-risk classes, should only resort to these policies when umbrellas are unavailable.
Umbrella Policy: Who needs one?
Individuals with a high net worth, or a family should consider an umbrella policy as part of their coverage. Businesses with space open to the public, have large operable risks, or that intend to service commercial contracts, may be required to show proof of increased limits prior to engagement.
Umbrella Policies / Extended Liability: Wes Connor Insurance
Our agency operates independently of carriers and strives daily to match our clients with the best value in the given scenario. If you have any questions, we will gladly review leases/contracts and any other impacting information to help tailor coverage to your needs.
photo credit: Gale Force Umbrella. Hammacher Schlemmer.
