What is Umbrella Insurance?
Umbrella Insurance Policies Provide Extra Protection
A rain umbrella protects you from getting wet, but doesn’t stop the raindrops from falling. Umbrella liability insurance is similar in that it cannot prevent accidents or mishaps, but can make those things less devastating financially.
Your primary insurance coverage, like your homeowners and auto policies, includes liability coverage up to a certain limit. Liability is your legal responsibility to pay for damage to a person or to a person’s property. An umbrella policy increases your liability coverage substantially—more types of claims are covered and at a higher limit.
Who Can Benefit from Umbrella Insurance?
- Anyone with assets to protect
- Everyone who drives a vehicle, including a car, motorcycle, boat or ATV
- Everyone who owns or rents a home
In our litigious society, we must protect our assets from lawsuits. The primary reason for carrying umbrella insurance is that you never know what you may be responsible for. Accidents happen, and when they do, you may be held legally responsible for resulting bodily injury and property damage as well as legal fees, all of which can quickly escalate to hundreds of thousands of dollars.
If you cause an accident, the legal system makes a judgment that, between you and the injured person, you should be the one to shoulder the financial repercussions. The person who suffered damage is then entitled to collect what is owed by claiming insurance proceeds. If the money provided by the insurance company is inadequate, a claim may be made on your income, assets and savings.
Adequate liability insurance protects you from these financial consequences. Pain and suffering, lost wages, medical bills and property damage are some of the items you may be sued for that are covered by umbrella liability insurance.
What Does Umbrella Insurance Cover?
A personal umbrella insurance policy provides additional protection by increasing coverage for liability in two ways:
- Increases the dollar limit of liability coverage for primary policies
Example: Assume the coverage limit on the liability portion of your auto insurance totals $300,000. If you purchase an umbrella policy of $1 million, and you cause an accident that exceeds your the $300,000 limit on your auto policy, your umbrella insurance can cover the remainder, up to $1 million dollars (a total of $1.3 million total liability coverage, in this case)
- Covers claims excluded by primary policies
Example: Typical liability policies may not cover damage claims resulting from false arrest, libel, slander, or defamation of character. If you are held liable for damages caused by these types of claims, the umbrella policy can help you cover costs.
The $300,000 liability limit in the prior examples may seem like a lot of coverage in the abstract, but can easily be exceeded in serious accidents.
How Much Umbrella Insurance Do You Need?
The right amount of liability insurance for any individual, family or business depends upon a number of factors. These include the risks you face and the assets you want to protect. For example, if you have a passion for speed boating, you have an increased risk over someone who only takes a dinghy out on the occasional fishing excursion. And if you have a high income, you are more likely to be sued in the event that you are at fault for injury to others.
Some professionals recommend that you add up all of your assets and then double that figure to determine the amount of liability coverage needed. Others look to the costs of medical payments and legal fees, which can vary considerably by region.
To figure out the right amount of liability insurance for you, talk to a knowledgeable agent. Independent agents in the Trusted Choice network will discuss what kind and amount of liability coverage you should purchase. These agents work with multiple insurance companies and they advocate for you, the consumer, not any one company. They can compare rates and options on your behalf.
Umbrella Liability Claim Examples:
- Accident: Despite your careful driving and best intentions, you cause a serious accident. Your umbrella policy kicks in when the property damage exceeds the $300,000 liability coverage limit on your auto policy.
- Dog Bites: Your dog escapes the yard and attacks a neighbor, resulting in extensive medical costs. The umbrella policy covers the excess costs of hospitalization, care and rehabilitation after your homeowners liability coverage is used up.
- Trampoline: Your son’s school buddies are playing on the trampoline in your yard and one of the boys flies off, suffering a spinal cord injury. Your umbrella liability manages the excess costs after you you exceed the limits on your homeowners or renters liability policy.
You hope these situations never occur, but statistically they sometimes do. You can limit the consequences with an umbrella insurance policy.
Do You Need More Liability Coverage?
You may want to give special consideration to an investment in umbrella insurance in the following circumstances:
- You are at greater risk for liability if you own a pool or trampoline or ride a powerful motorcycle. Statistics indicate that these activities and others are more likely to lead to expensive liability claims.
- If you have assets at risk, including retirement savings, business income, college funds, and other assets with total values that exceed the liability maximum on your home or auto policy.
- One of the best reasons to own an umbrella policy is the attractive price for peace of mind. The premium you pay for the maximum claim payout tends to be low. In other words, relative to the protection afforded, umbrella insurance can be a great deal.
– Article courtesy of Trusted Choice®