by Norris Rios

Your auto insurance policy has a limit. So does your home insurance policy. Limits may sound confining because they limit the insurance company's liability in claims that affect your car or home, but they also benefit you because they limit your premium. After all, if you had unlimited liability from the insurance company, the premiums they would have to charge in order to stay in business would be outrageous. But some individuals want a little extra insurance - more than their regular insurance policies offer. Those individuals can choose to add an umbrella policy to their insurance arsenal.
What is an umbrella insurance policy?

An umbrella policy is not like a different kind of insurance plan, but simply a liability policy that stretches out over the limits of your existing home insurance or auto insurance policy. And like an umbrella protects its carrier from the coming rainfall, an umbrella insurance policy protects policyholders from the claims of individuals that exceed the limits of their underlying home insurance or auto insurance. You don't need a separate umbrella insurance policy for both home and auto coverage - one umbrella policy extends protection for claims under each policy.
How does it work?

Having a pool can be a lot of fun, but it can also bring a lot of liability to a home owner's doorstep. If one of your friends or neighbors is visiting your home and is injured while swimming in or walking around your pool, it could result in a very large claim against your home insurance policy (depending on the nature and extent of the damages suffered). For the sake of this example, let's say that you have a home insurance policy with limits of $250,000. Your children's friends come over one afternoon to enjoy the pool and one of them slips and falls in, resulting in a neck injury and partial temporary disability that creates a need for several years' worth of physical therapy and surgery in order for that person to walk again. This could result in a liability claim of $1 million or more - but your home insurance will only pay up to $250,000. The rest of the claim is your responsibility to pay - unless you have an umbrella policy. If you did, the umbrella policy would pay the remaining $750,000 due and you would not have to sell your home or dip into your personal assets to pay the claim. The example would work the same way if your automobile was the cause of the injury rather than the pool.

Because umbrella policies are not required by law, it is up to you whether or not you have one. When you consider the damage to your finances and your future that a single liability claim could have, you might find that the additional protection of an umbrella policy covering your home and auto is just enough to help you sleep easier at night.

by Allen Broadly


When you decide to insure your house, you'll be asked to set a limit for coverage on contents of your house. And the higher is the limit the heftier your premiums will get. Some providers will let you cover your house's contents without a specific limit and this will cost you even more in premiums, while you will only be reimbursed with the actual value of the damaged contents in case of an insurance situation, and not a cent more.

The main problem here is while the typical amounts of coverage may seem like large sums of money, people often tend to underestimate the value of their house's contents and get lower coverage, risking being insured inadequately. For a typical house to be covered adequately the coverage limit should start somewhere around $100,000. However, the best way to get an exact amount is to make an inventory of all the items in your house and have the insurance agent to evaluate it according to their current value.

Underinsurance

You should keep in mind that some insurance companies use the principle of averaging when paying out claims. This means that the amount you will be reimbursed with will be based on the overall coverage amount you have for your entire house, and not the actual value of its contents. This means that if you have a lower amount of coverage than the overall value of your house contents then you'll be paid out only a partial sum instead of reimbursing the actual value of items damaged. This can even apply if you claim for a single item being damaged, which is below your policy limit.

Renting or owning?

If you're renting your house, the list of items to be covered may actually be shorter than if you were the actual owner of the house. This is because the homeowner takes responsibility for the general infrastructure, and you are responsible for the actual content. This often results in lower premiums compared to typical homeowners insurance rates.

Coverage checklist

Here are a few things you'll have to keep in mind when evaluating the total coverage for your home insurance policy. Remember that you should cover everything, because events like fire or natural disasters can completely destroy your house and you'll need full coverage to reimburse your losses.

Kitchen: Everything that you have in the kitchen, starting from forks and dishes to all the gadgets should be evaluated and included in the coverage calculation. Because a single plate may cost just a few dollars, but when you have them all broken it can get quite expensive. The same goes for gadgets that are usually more expensive.

Bathroom: Most think that the bathroom doesn't have so many items to cover, but as soon as you start adding the value of all the gadgets, the fancy sink, bath or even perfumes the sum gets quite hefty.

Bedroom: Besides the obvious items you would want to insure like furs, diamond rings and other valuables that are usually stored in the bedroom, don't forget to include less pricey items like the tent you have under your bed or the rucksack in your closet. Things like that can add hundred and even thousands of dollars to your coverage limit.

Living room: Sure, you'll want to cover your TV set, DVD player, stereo system, computer and other important gadgets. But don't forget to include your CD/DVD/vinyl collection because it can cost a fair amount too. You small library can also add a few hundreds of dollars to the final coverage, so don't overlook the content of your shelves when getting homeowners insurance quotes.