How to insure a house in a living trust. This reader wants to know how insurance coverage works if policies are titled in the name of a living trust.

Q: My insurance agent said the insurance company wants my policies (fire, wind and umbrella) titled in the name of my living trust. While doing some research to try to understand why this is necessary, I found advice (not to mention definitions) to be all over the board. 

I’m also confused on whether an accident at my home would be covered if the living trust owns the home and owns the policy. This seems to be a new concept, not standardized, but undoubtedly it is of some benefit to insurance companies. Will you please write about this in a column and give your followers some clarity?

How to Insure a House in a Living Trust

A: At the most basic level, your homeowner’s 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, 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, is burgled, or a tree falls on your garage, crushing it, these perils, as they are known on homeowners insurance policies, are typically covered under your homeowner’s insurance 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 different 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. 

How Umbrella Policies Work

The umbrella policy adds coverage to your homeowner’s insurance policy on the liability side. Let’s say your homeowner’s 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 other incidents, in other ways that your homeowner’s insurance policy does not. If you have auto insurance, the umbrella coverage increases your auto insurance policy’s liability coverage as well. 

Who Should Be Named as the Insured?

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: Some people own their home in the name of their living trust, but then own their car in their own name. We won’t get into how people should or shouldn’t title their homes and personal property here. Suffice it to say, that your auto policy should be in your name and the homeowner’s 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.

Here’s where your insurance agent can be helpful: 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. 

So, the homeowner’s policy can name the trust as the owner of the property but also add you as an additional insured. You can do the same with the auto policy and the umbrella policy can cover both you individually and the living trust as well.

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.

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