In this video, I discuss umbrella as covered on the Taz Compliance and Planning TCP on the CPA exam.

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Umbrella insurance contracts are a type of liability insurance. They differ from standard insurance policies in a few key ways:

Purpose: Umbrella insurance is specifically designed to cover liabilities, not property damage. This means it kicks in when you're legally responsible for injury or damage to someone else's property, not your own.

Requirements: To have an umbrella policy, you typically need to maintain a certain level of liability coverage in your basic insurance policies (like homeowners or auto insurance). For example, your umbrella policy might require that your homeowners insurance includes at least $500,000 in liability coverage.

How it Works: If a claim exceeds the limits of your standard insurance policy, the umbrella policy comes into play. It acts as an additional layer of protection, covering costs that go beyond what your regular insurance can handle.

Exclusions: Not everything is covered under umbrella policies. There are generally three types of exclusions:

Personal: Your own injuries or damage to your personal property aren't covered.
Criminal: Any intentional or criminal acts causing injury or damage aren't covered.
Business-Related: Damage or liabilities arising from business activities, professional services, or workers' compensation issues are excluded.
Examples:
Example of Coverage: Suppose you're at fault in a car accident, and the damages exceed the liability coverage of your auto insurance. If you have umbrella insurance, it can cover the remaining costs, preventing you from paying out of pocket.

Example of Exclusion - Personal: If you injure yourself at home, your umbrella policy won't cover your medical expenses, as it doesn't cover personal injuries.

Example of Exclusion - Criminal: If you intentionally damage someone's property, any liability arising from that act won't be covered by your umbrella policy.

Example of Exclusion - Business: If you're involved in a lawsuit related to your business activities, your personal umbrella policy won't cover those liabilities.

Umbrella insurance is a way to add an extra layer of financial security, ensuring that you're protected in cases where your standard insurance falls short. However, it's important to be aware of its limits and exclusions.


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