What Is Umbrella Insurance?
An umbrella insurance policy is additional liability coverage that provides protection if a claim exceeds the limits and coverages of other policies, such as homeowners insurance, auto insurance, and personal liability policies. To purchase an umbrella insurance policy, you must have a standard homeowners, auto, or boat insurance policy first. Many people who purchase umbrella insurance have valuable assets or frequently engage in activities that could increase the risk of a potential lawsuit.
Why Do You Need It?
An umbrella insurance policy protects you if you exceed the limits of other policies, such as an auto insurance policy. For example, if you were involved in a car accident where you were at fault, resulting in $200,000 worth of damages, and the bodily injury limit on your auto insurance is $100,000, you will have to cover the rest of the damages out of pocket. This could result in a legal battle during which you may lose your current assets. An umbrella insurance policy protects you from this possibility by covering the amount that your auto insurance policy cannot. If you own or rent cars, boats, other vehicles, or if you have dogs or dangerous pets, you may be at an increased risk of being involved in a lawsuit, as other people may be injured because of your property. Also, if you have valuable assets or high income, you may need to consider purchasing an umbrella policy.
How Does It Work?
An umbrella insurance policy provides coverage for claims that are beyond the limits of other insurance policies. If you exceed the liability limits of your car insurance, homeowners insurance, boat insurance, or other types of insurance, an umbrella policy covers the extra amount once the coverage limit has been exhausted. Your standard insurance policy will cover the damages up to the coverage limits, while the umbrella insurance will kick in after the limit has been reached.
An umbrella policy may also provide coverage for claims that are excluded by other liability insurance, such as slander, libel, and liability coverage on rental property. You can purchase an umbrella policy from the same provider you use for other policies. An umbrella insurance policy provides coverage on policies such as bodily injury liability and property damage liability. For example, if you own a property and someone gets injured on that property, there is a limit to what your insurer will cover. If you have a pool or trampoline on your property and someone is injured while using either of these facilities, your regular policy might not be able to cover the medical costs or potential lawsuit. An umbrella insurance policy, however, would be able to assist with such costs.
In short, if the damages are above the coverage limit of your insurance, an umbrella policy will cover the amount that is above the coverage limit.
However, umbrella policies do not cover
- your own injuries
- damages to your property
- intentional or criminal acts performed by you
- liabilities assumed by you under a contract(s).
Is It Worth Having Umbrella Insurance?
In many cases, purchasing an umbrella insurance policy is worth it. For example, if you frequently take part in activities that can result in a potential lawsuit or if you have valuable assets, then you may consider buying an umbrella insurance policy. Umbrella insurance protects your income or assets from being forfeited due to a lawsuit.