A: At the most basic level, your homeowners insurance policy provides financial protection against loss due to disasters, theft and accidents. Most standard policies include four essential types of coverage: coverage for the structure of your home, coverage for your personal belongings, liability protection and coverage for additional living expenses (should your home become unlivable due to the disaster and you have to decamp elsewhere).
So, if your home burns down, your home is robbed or a tree falls on your garage, crushing it, these perils, as they are known on homeowners insurance policies, are typically covered under your policy. Your policy should pay to repair the damage you have suffered.
In your case, you own your home inside your living trust and you seem to have several insurance policies, including homeowners insurance, a separate umbrella insurance policy and perhaps a rider (or even a separate policy) that would protect against wind damage.
The umbrella policy adds coverage to your homeowners insurance policy on the liability side. Let's say your homeowners insurance policy has a liability coverage of $300,000. Your homeowner's insurance policy would cover you if someone got hurt on your property. The limit on the policy would be $300,000.
However, if the damages were higher than $300,000, you might be on the hook for that extra amount personally. But the umbrella liability policy might give you a higher coverage amount at a relatively low cost. If your umbrella coverage was $1,000,000, your umbrella coverage would kick in to cover you in case the incident at your home was for more than $300,000 and less than $1 million.
The umbrella policy would also cover you for incidents in other ways that your homeowners insurance policy does not. If you have auto insurance, the umbrella coverage increases your auto insurance policy's liability coverage as well.
Typically, you would be named as the insured with the policies you own. If you have a mortgage, the mortgage company will insist on being named on your homeowners insurance policy (which homeowners often forget to change once they pay off their mortgage). But, if you have a trust, and own property inside the trust, your homeowners insurance policy will need to name the trust as the insured, not you.
It can be complicated: Suffice it to say, your auto policy should be in your name and the homeowners policy should be in the name of the trust.
The key is knowing how your policies define "insured." Sometimes the policies state that the insured can be the trust and, by definition, the owner of the trust is also insured. In this situation, if the trust name is on the policy, you would be covered as well.
Ask your agent more about this specific issue. If the definition under the policy would not include the owner of a trust (i.e., the beneficiaries), then you might want to have the policy add you as an additional insured and a loss payee.
The homeowners policy can name the trust as the owner of the property but also add you as an insured. You can do the same with the auto policy, and the umbrella policy can cover both you individually and the living trust.
At the end of the day, if the insurance policies list the correct names of the owners, the definition covers you and the trust. Or, if you add your names as additional insured and loss payees on the policies, you should be covered. Talk over these details with your agent to get your next best move.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.