Insurance lingo watch: umbrella policy

Two common insurance questions we hear: “What’s an umbrella policy?” and “Do I need one?”
An umbrella policy is an added layer of liability insurance protection that goes above and beyond your policy’s stated coverage limits. This coverage is designed to kick in once any other coverage has been exhausted. Umbrella policies can extend your liability coverage for personal policies, such as your homeowners and auto, and they can also add a layer of liability protection for commercial and business policies. In the commercial arena, umbrella policies may also be referred to as “umbrella liability” or “excess liability” policies.
Your standard insurance policies should provide adequate liability coverage for most situations that would arise, but in today’s lawsuit-happy age, an umbrella policy can provide an added layer of protection. Should a problem arise, this secondary coverage would pick up where your primary coverage stops.
The Insurance Information Institute talks more about personal umbrella coverage: Should I purchase an umbrella liability policy?
Financial Web offers more on business liability umbrella insurance: Commercial Umbrella Insurance: is it indispensable for your business?
Just a reminder that this is only a brief informational overview. As with any insurance issue, coverage specifics will vary by policy and by insurer. If you think that you or your business might benefit by umbrella coverage, pick up the phone and have a talk with your independent agent. Be it personal or commercial matters, your agent can help you to plan the best combination of coverages to meet your specific and unique needs, and can also shop around to find the best available coverage at the best price.

Lingo watch: endorsement

An endorsement or a “rider” is an optional, written addendum to a basic insurance policy that modifies the terms of the insurance contract. Generally, an endorsement would be added to protect the insured by expanding or limiting the coverage in some defined manner. An endorsement or rider can occur at the start of a policy or can be added midterm.
Example: for a standard homeowners policy, common endorsements might include coverage for a home business, coverage for damage incurred during natural disasters such as earthquakes, floods or windstorms, coverage for property’s replacement value rather than cash value or an endorsement might expand coverage limits for valuables.
A specific endorsement may not be available from every insurer or in every state. A good insurance agent will likely inform you of any common policy options, but when discussing a specific type of insurance with your agent, ask if there are any options that would expand your coverage.

Lingo watch: deductibles

A deductible is the amount of money that an insured person or business must pay for loss, damage, or services before payments will be triggered by an insurer. The terms of the deductible are stated in an insurance policy. If you have a deductible, it means that you, the insured, will be responsible for any losses or payment of services up to the stated dollar amount. You will commonly see deductibles in auto insurance and health insurance policies. Usually, deductibles are defined as a dollar amount, but can also be defined as a percentage – this is increasingly common for homeowners insurance in places that are at high risk for hurricanes and weather-related damage.

Deductibles are a way for insurers to avoid the cost of processing and paying a high volume of small claims. The more risk for loss that you, the insured, agree to assume before the insurance kicks in, the lower your premium.

Example: You are in an auto accident and your car’s damages are assessed at $950 in damages. If your insurance policy has a $500 deductible, you will have to pay the first $500 of the damages to your car out of your own pocket and the insurer will pay the remaining $450. Generally, once the deductible is met, any future losses that you might have during the term of that policy will be covered in full.

Businesses can also opt for deductible plans for certain types of business coverage such as workers compensation programs.

As with all insurance matters, you need to check your own policy. Insurance can vary by state law, by type of coverage, and by individual policy. It’s a good idea to read your policy and to ask your insurance agent to explain any terms that you don’t understand.

Learn more
Hurricane and windstorm deductibles – from the Insurance Information Institute
Deductible definitions – various definitions compiled by
How deductibles and co-pays work – a discussion of health insurance from How Stuff Works

Lingo watch: Business Owners Policy (BOP)

Business Owners Policy – also known as BOP – a type of insurance purchased by small to mid-sized businesses that combines several forms of business insurance in one package, usually at a more affordable price than buying each policy separately. Typically, BOP includes property insurance, liability, and business interruption.
Learn more: What does a business owners policy cover?