Umbrella Insurance

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What It Is

Umbrella insurance is an insurance policy that increases the amount of insurance you are carrying under other policies. In other words, it increases the limits of your other policies. For example, you currently have auto insurance and homeowners’ insurance, but an umbrella insurance policy would cover the expenses that are left over when your auto and home insurance policies are exhausted.

You are carrying liability insurance under your home and auto insurance policies, but liability insurance policies exclude some perils. An umbrella insurance policy would also be able to cover you in the event that you are accused of libel or slander or are falsely arrested. Regular insurance policies do not cover these perils.

Who Is it for?

Umbrella insurance is for people in danger of being the subject of a lawsuit. For example, under your current auto insurance policy, you may have liability coverage in the amount of $50,000 that covers the medical bills for all people involved in a car collision that you are determined to have caused. The injuries could be very severe, and the bills could amount to much more than $50,000. Your insurance company would pay the medical bills until the $50,000 limit is reached and then it would stop paying.

How It Works

After the insurance company stops paying, the injured parties would be able to sue you personally for the damages that you caused, and you would be responsible for paying whatever the judge or jury awards the plaintiffs on your own. This scenario is what umbrella insurance was created to prevent. With an umbrella insurance policy, you would have additional insurance coverage that would pay the amount that goes beyond the $50,000 limit of your initial auto insurance policy.

Different Types of Coverage in Existence

Besides bodily injury liability and property damage liability, umbrella insurance can be extended to cover the following:

  • Legal fees and court costs
  • Lawsuits filed against you

Major Benefits

The major benefit of umbrella insurance is that it eliminates the danger of having to spend your retirement funds on payments to those injured in accidents that you caused.