Latest news with #financial protection
Yahoo
23-07-2025
- Automotive
- Yahoo
What is umbrella insurance, and why should you consider it?
Accidents happen. Someone can slip on ice on the walkway to your house and break several bones. You could rear-end the car in front of you on a rainy night. Your dog could bite the mail carrier. Your home or auto insurance can cover the costs of these accidents if you're on the hook for them. Sometimes, though, costs can exceed what your insurance will cover. Then you're at risk of having to pay out of pocket — that is, unless you have an umbrella policy. This embedded content is not available in your region. Learn more: How does car insurance work? The basics explained. Umbrella insurance: 'Often overlooked' 'Umbrella coverage is the often-overlooked safety net that can protect you from financial disaster,' said Jason Javaheri, co-founder and CEO of Los Angeles-based J&Y Law Firm, which represents injury victims. And the cost is relatively low for the protection it provides. J.D. Power's Craig Martin said that according to the J.D. Power 2024 U.S. Homeowners Insurance Study, only 38% of customers with an annual income over $200,000 indicated they have an umbrella policy, while only 22% of those with incomes between $100,000 and $200,000 had an umbrella policy. The percentage dropped to 14% for those with incomes less than $100,000. That's why it pays to understand what an umbrella policy is, how it works, what it covers, and how much coverage you might need. Learn more: Homeowners insurance: What it covers and how much you'll pay What is an umbrella policy? An umbrella policy is a type of insurance that provides additional coverage if you exceed the liability limits on your home, auto, or other property insurance. It's meant to protect your assets if there is a large claim or judgment against you. Standard homeowners and auto insurance policies typically provide liability coverage for costs such as medical bills and legal fees if you're responsible for causing property damage or injuries to others — but only up to certain limits. You could easily top those limits if, for example, you were sued for damages related to a multi-vehicle car accident with several injuries. 'That's where umbrella would come into place,' said Kim Bowser, vice president of national product and experience development at Grange Insurance. 'Your auto or home insurance would typically cover the loss first. Umbrella kicks in as an extra layer on top of that coverage protection.' Up next Up next How an umbrella policy works Umbrella policies are available in million-dollar increments, ranging from $1 million to $5 million (but potentially higher for high-net-worth individuals and families), explained Erika Tortorici, owner and principal of Optimum Insurance Solutions in Hamilton, Massachusetts. To buy a policy, you must already have a certain amount of liability coverage through auto, home, or other property insurance. Insurers typically require a minimum of $300,000 in liability coverage on a homeowners policy and $250,000 per person/$500,000 per accident liability coverage on an auto policy. Learn more: How much car insurance do I need? Those thresholds are high because umbrella insurance is meant to cover only large claims, said Jennifer Gambill, a Miami-based independent insurance broker with World Insurance Associates. For example, if you were sued because someone was injured on your property and had to pay $500,000, your home insurance would pay up to its $300,000 limit, then an umbrella policy would pay the remaining $200,000. What does umbrella insurance cover? An umbrella policy provides coverage for both your home and your automobiles. It can also be extended to cover recreational vehicles, boats and other watercraft, rental property and timeshares, and other members of your household, including children away at school, Gambill said. An umbrella policy provides coverage for the following: Injuries to others, including the cost of medical bills and liability claims Damage to other people's property Personal injury to others, including libel, slander, and defamation Your legal fees to defend yourself in a lawsuit Learn more: What does homeowner insurance cover? What will an umbrella policy not cover? An umbrella policy covers your liability to others, not damages or injuries to you or your property. 'If your dog were to bite you, the umbrella policy typically wouldn't cover those medical costs you might incur,' Bowser said. It also does not provide coverage for the following: Intentional injuries to others Illegal activities, including accidents and injuries related to drag racing Losses related to a business you run out of your home Legal costs related to something you agreed to in a contract What types of claims would fall under an umbrella policy? Here are just a few examples of the types of claims that would be covered under an umbrella policy. You accidentally hit someone while driving or cause a serious accident with multiple vehicles You post something defamatory about someone on social media and are sued Your children's friends are injured on your trampoline or pool Your dog seriously injures a delivery person Learn more: What does homeownership not cover? This embedded content is not available in your region. How much umbrella coverage do you need? The amount of umbrella coverage you need depends on what you want to protect. For a standard two-car household with one home, $1 million in umbrella coverage can be adequate, said Alaina Hixson, director of sales and operations at The Churchill Agency, an independent insurance agency near Nashville, Tennessee. 'The more assets you have, the more protection you need,' she said. You might also need more protection if you are exposed to more risks, such as teen drivers in your household or a sport or hobby such as hunting that could result in others being injured. Your insurance agent can help you assess how much umbrella coverage you need. How much does umbrella insurance cost? Umbrella insurance is relatively inexpensive for the coverage you get, said Tortorici. For example, a household with one home and two drivers would typically pay $250 to $350 a year for a $1 million umbrella policy, she added. Adding teen drivers to your coverage will drive up your rates. So will multiple properties, vehicles, and watercraft. Your location, claims history, and driving record will also affect the cost of umbrella insurance. However, you typically can get a multi-policy discount when bundling an umbrella policy with your existing home, auto, or other property insurance. Learn more: How much is homeowners insurance? A guide to lowering costs. Pros and cons of an umbrella policy There are plenty of benefits of owning an umbrella policy, but there are a few cons to consider. Pros Expanded liability coverage to protect your assets if your underlying home or auto insurance liability coverage isn't enough to pay for large claims Relatively low cost for the coverage you get Wide range of coverage for liability claims Additional coverage for claims not typically covered by home and auto insurance, such as libel, slander, and even false arrest Coverage for other household members in addition to coverage for the policyholder A single policy can cover a range of property, including a home, vehicles, and watercraft Cons High underlying liability limits on your home and auto insurance are required to purchase umbrella coverage Coverage is limited to injuries and damage to others and their property, not you or your property Additional cost of owning a supplemental insurance policy Who needs umbrella insurance? 'Umbrella insurance isn't just for the wealthy,' Javaheri said. 'It is for anyone with something to protect.' You should consider an umbrella policy if any of the following applies to you: You own a home and vehicles You own rental property You have a high net worth You have teen drivers You have a pool or trampoline You have an RV, boat, or other watercraft You have a dog You engage in high-risk activities that could injure someone else Who doesn't need umbrella insurance? To have umbrella insurance, you must have certain primary insurance protection in place. 'If you don't own a car or home, you can't get an umbrella policy,' Gambill explained. For example, you probably don't need umbrella insurance if you are a renter who relies on public transportation. That said, you still should get renters insurance with the maximum amount of liability coverage available. Learn more: How an auto and renters insurance bundle can save you big How to get an umbrella policy The best way to get an umbrella policy is through your existing auto or home insurance provider. In fact, if you want an umbrella policy to cover your home, vehicle, and other property, all policies have to be under the same insurance carrier, Hixson said. Plus, having multiple policies with one carrier usually allows you to score a discount on your premiums. Rarely would it make sense to get an umbrella policy through a different insurance carrier than the one you have. A few circumstances, such as owning a hard-to-insure breed of dog or having a bad driving record, might force you to get an umbrella policy through a specialty carrier, Tortorici said. Umbrella insurance FAQs What are the disadvantages of an umbrella policy? You can't buy an umbrella policy unless you already have an auto or homeowners policy with a high level of liability coverage. You might have to switch insurers if your current provider of home or auto insurance doesn't offer umbrella coverage. Plus, an umbrella policy is an additional insurance cost. 'You're paying for the peace of mind,' Tortorici said. 'Hopefully, you don't use your umbrella.' Is umbrella insurance worth it? Umbrella insurance can protect your assets if you accidentally injure someone or damage property and have to pay a large claim. Although most state laws prevent your home from being seized if you're sued, your other property, investments, and wages could be at risk if you don't have enough liability coverage through your existing home or auto insurance to pay claims. 'I've seen [umbrella insurance] do amazing things to help people,' Hixon said. 'I don't think you can be overprotected when it comes to liability in this country.' Do I have to get umbrella insurance through my current provider? You usually have to buy umbrella insurance through the insurance company that provides your auto or home insurance. However, some insurance companies offer stand-alone umbrella policies, meaning you don't have an auto or homeowners policy with them. Tim Manni edited this article.
The Independent
17-07-2025
- Business
- The Independent
New buy now, pay later rules will give shoppers ‘better protection', regulator says
Buy now, pay later lenders must now check that people can afford to repay their loans, a consultation put forward by the Financial Conduct Authority (FCA) says. Providers should also offer support if customers get into financial difficulty, in greater protections revealed by the FCA. Borrowers will also be able to complain to the Financial Ombudsman Service if something goes wrong. The rules, giving consumers more transparency over what this type of borrowing involves, would take effect when buy now, pay later (BNPL) comes under the FCA's remit next year. The new oversight by the FCA would mean that BNPL borrowers will have key protections that already exist for other types of lending. The FCA also oversees the Consumer Duty, which requires financial firms to put consumers at the heart of what they do, including when designing products and communicating with their customers. Sarah Pritchard, deputy chief executive at the FCA, said: 'We have long called for BNPL products to be brought into our remit, so people can benefit from BNPL while being protected. 'Our regulation will help consumers navigate their financial lives, with checks on whether they can afford to repay, support when things go wrong and access to the right information to make informed decisions. 'We're mainly relying on existing requirements, including the Consumer Duty, rather than proposing to make lots of new rules, supporting growth and allowing firms to innovate.' BNPL products are a way for people to spread the costs of purchases without paying interest. BNPL options regularly pop up at online checkouts. But concerns have been raised that some people could end up taking out loans that they cannot afford to pay back on time, incurring charges. According to the FCA's research, one in five (20%) UK adults – equating to 10.9 million – had used BNPL at least once in the 12 months to May 2024, up from 17% in 2022. In May 2024, 2% of UK adults (equating to 1.1 million) had £500 or more outstanding unregulated BNPL debt, and 11% of UK adults (5.3 million) had £50 or more outstanding, the regulator found. The FCA's consultation is open for feedback until September 26 2025. A temporary permissions regime will be open for firms to register two months before the regime comes into force on July 15 2026. Firms will then have six months from the date the regime comes into force to apply for full authorisation. BNPL is a broad term which can include some credit agreements that are already regulated, the FCA said. Its new proposals relate to unregulated BNPL agreements, referred to as deferred payment credit (DPC). The Government has made legislation to bring DPC products under FCA regulation. DPC refers to unregulated interest-free credit, which finances the purchase of goods or services and that is repayable in 12 or fewer instalments within 12 months or less. Lenders who only provide DPC do not currently need to be FCA authorised, leading to concerns that some borrowers may not be receiving enough information about what credit agreements involve. Alison Walters, interim director of consumer finance at the FCA, told the PA news agency: 'Our proposals are aimed at ensuring that consumers get good consumer outcomes and that there is an appropriate degree of consumer protection. 'And by that, we mean that consumers get the right information, in the right way, at the right time, so that they can make an informed decision about their buy now, pay later lending.' She continued: 'What we're asking in our rules is for firms to carry out an affordability check, to ensure that consumers are able to pay. And if they get into financial difficulty to provide them with an appropriate level of support. 'We also want them to give more information in relation to late fees, consequences if they miss a payment, and impacts, for example, if it may affect credit ratings. 'And also information about their withdrawal and cancellation rights.' She added: 'If something goes wrong, consumers will be able to refer their complaint to the Financial Ombudsman Service.' Ms Walters said that in terms of supporting those in financial difficulty: 'Under our existing rules, firms can offer forbearance to consumers if they get into financial difficulty.' She said that could include changes in the payment plan and people can also be signposted to debt advice or other support mechanisms. Ms Walters added that under the new rules 'we still think that this market will be viable and profitable'. She pointed out that the BNPL market has already grown in size and popularity. According to the regulator, DPC lending has grown from £0.06 billion in 2017 to more than £13 billion in 2024. A Klarna spokesperson said: 'After five years of constructive work with HMT (HM Treasury), we're entering the home straight to make BNPL regulation a reality – a major win for UK consumers. 'We're looking forward to working with the FCA on rules that protect consumers while keeping choice and innovation at the heart of the UK credit market.' A spokesperson at BNPL provider Clearpay said: 'We will support the FCA as it consults on and finalises its specific rules for the sector.' The spokesperson said regulation 'will establish a consistent operating environment and clear compliance standards for all providers,' adding: 'Clearpay research highlighted that nearly half of UK adults (48%) are more likely to use BNPL once regulation is passed, and with 71% believing that it is important for BNPL to be subject to UK financial legislation, today's announcement will help foster trust among consumers. 'It will also create a more sustainable foundation for the future of BNPL as it continues to grow as an everyday payment option for consumers.' Vikki Brownridge, chief executive of StepChange Debt Charity, said: 'It's incredibly reassuring to see the FCA's consultation on its proposed approach to regulating buy now, pay later.' She added: 'Whilst BNPL can be a useful budgeting tool, it can deepen debt problems, and it is important struggling consumers are afforded the same level of protection as for other forms of credit. 'Bringing BNPL firms in line with the wider credit market, when regulation begins next year, will provide an added layer of protections for consumers, a much-needed change as StepChange polling found that BNPL users are twice as likely as all credit users to borrow to cover essential bills, and our research also found that BNPL is now as common as using an overdraft amongst UK adults.' Vix Leyton, a consumer expert at app ThinkMoney, said BNPL 'can be a really useful tool, particularly when life throws you an unforeseen cost that drives a wrecking ball through your budget. 'But while spreading the cost can take the pressure off, it's temporary relief if it's not done responsibly and mindfully.' She added: 'Proper affordability checks, in line with other credit products, are vital to stop people unintentionally kicking the financial can down the road, as is making sure that those in financially vulnerable positions understand the consequences of missed payments.' Rocio Concha, Which? director of policy and advocacy, said: 'Buy now, pay later can be a really convenient way to spread the cost of items, but because it is not yet regulated, it hasn't come without risk to consumers. 'Regulation will mean that consumers will be subject to affordability checks to ensure responsible lending as well as making sure they are given sufficient information about the credit they are taking on and the risk of falling into debt.'
