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How to Insure Your Income: Broader Scope of Coverage

An important function of a true umbrella is that it provides broader coverage than the underlying policies. The term drop down coverages is often used to name the coverages provided by the personal umbrella that are not provided by the underlying liability policies. Some of these include:

  • Personal injury coverage. The typical underlying homeowners policy provides liability coverage for accidental bodily injury (meaning physical injury or death), but not for events involving libel, slander, false arrest and the like. The personal umbrella does cover you for liability arising out of these events.
  • Regularly furnished autos. The standard personal auto policy contains language that precludes liability coverage for the use of vehicles made available for your regular use (such as a company car). The personal umbrella does not exclude such situations.
  • Contractual liability. The standard home-owners policy severely limits coverage for liability assumed by contract. The personal umbrella is much broader in its provision of coverage for such events.
  • Damage to property of others in your care, custody or control. The standard homeown-ers policy excludes coverage for damage to property left in your care. The personal umbrella does not exclude coverage for damage to such property.

A key concept that comes into play when a personal umbrella covers a loss via a drop down coverage is termed a self-insured retention or SIR (called a retained limit in some policies). When the umbrella alone provides coverage for a loss, the insured bears what amounts to a deductible by retaining the first small portion of the loss (typically $250).

Loss payment is administered somewhat differently from traditional deductibles. You write a check to your insurance company for the amount of the SIR, and it pays the injured party the entire amount for which it is liable.

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