Tuesday, October 29, 2013

Your Auto Insurance Umbrella Policy: Protection After A Crash---Or Full Of Holes?

An automobile "Umbrella Policy" can provide your family with HUGE protection after an auto or motorcycle collision, but there are a few things you need to understand first, and a couple of possible holes in the umbrella you need to look out for.

But first things first--here's how an umbrella policy works. Simply, it is a policy you buy in addition to your underlying auto policy. Example: you have "100/300" liability and uninsured/underinsured (UM/UIM) coverage with your insurance company. If you purchase a $1 million umbrella, you now have a minimum of $1.1 million in both liability and UM/UIM coverage.

So let's say your headed for church for an evening meeting and you and your spouse are hit by a drunk driver. Both of you sustain serious injuries and require surgeries, rehab, lost time from work, home health care, etc. If the drunk driver had only $100,000 total worth of coverage, and not nearly enough to  compensate you for your medical bills, physical pain, and future problems, you could bring an underinsured motorists' claim against your own insurance company, and could recover potentially up to an additional $1 million.

(Little known fact: umbrella policies are incredibly cheap for the protection they provide. In a recent case I handled, the clients bought a $1 million policy for an additional $235 per year. A no brainer if you can afford it).

But there are two things you need to check out before you buy an umbrella. First and foremost, MAKE SURE THE UMBRELLA POLICY INCLUDES UNINSURED AND UNDERINSURED MOTORISTS' COVERAGE. DON'T BUY IT IF IT DOES NOT INCLUDE THIS COVERAGE!!! Why is this important? UM/UIM coverage is the MOST IMPORTANT part of your policy. It protects you and your family if some texting or other irresponsible driver injures you.

I have discovered quite a few umbrella policies over the years that did not include this protection. The clients thought they had "full coverage," only to find out after a bad crash that their umbrella did not include UM/UIM coverage. In my opinion, it is both wrong, and borderline fraud, to sell an umbrella policy that does not include valuable protection for your family.

How do you shore up this potential gaping hole in your umbrella? Ask your agent, in writing, whether the umbrella includes UM/UIM coverage, and GET THE ANSWER IN WRITING!

Second, ask whether the $1 million umbrella, that now includes UM/UIM because you're now an educated insurance consumer, is limited to $1 million no matter how many family members are injured? Some umbrella policies are written as "occurrence policies," meaning that the most the insurance company will pay is $1 million TOTAL, no matter how many family members were injured.

In the example above, what if husband's and wife's claims exceed the $1 million umbrella limits due to the severity of their injuries? They'd be out of luck and limited to $1 million with an "occurrence" policy.

Umbrellas are supposed to protect you when it rains. And we all know what it's like to get soaked from a cheap one when you're watching your kids' ballgame or walking from point A to B. That's nothing compared to the drenching you'll get if you have a hole filled umbrella policy--or worse yet, none at all.

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