What Is an Umbrella Insurance Policy?

An umbrella insurance policy is extra liability insurance that goes beyond the limits of the insured’s homeowners, auto, or watercraft insurance. It gives people an extra layer of protection if they are at risk of being sued for damaging someone else’s property or hurting someone else in an accident. It also protects people from slander, libel, vandalism, and invasion of privacy.


How an umbrella insurance policy works?


An umbrella insurance policy is most useful for people with a lot of assets or very expensive assets who are at a high risk of being sued and could use the extra coverage it gives. Small businesses also use umbrella insurance to protect themselves from claims that could cause them to lose money.
 
If you buy an umbrella insurance policy from the same company that covered your car, home, or boat in the first place, the premium may be less expensive. Depending on the insurance company, a policyholder who wants to add an umbrella policy must have a base policy that covers between $150,000 and $250,000 for auto insurance and between $250,000 and $300,000 for homeowners insurance.


Extra liability insurance is another name for umbrella insurance. An umbrella policy helps pay what a policyholder owes if they are sued for damages that are more than what their car insurance, homeowners insurance, or other types of coverage will cover. In other words, if the original policy’s dollar limit has been reached, the umbrella policy acts as a backup so that the insured person doesn’t have to use savings or other assets.


Things to think about


People who buy umbrella insurance often own expensive things or have saved up a lot of money. Or they may have dangerous things and could hurt someone (swimming pools, trampolines, dogs, etc.). They might also do things that make them more likely to get sued, such as:

  • How to Be a Landlord
  • Coaching sports for kids
  • Joining the board of a charity
  • Volunteering
  • Putting up reviews of products and businesses regularly
  • Playing sports where you could easily hurt someone else (skiing, surfing, hunting, etc.)


Example of a policy for umbrella insurance


Think about the following situation to see how umbrella insurance can help. If a driver goes through a red light and hits another car by accident, there could be a lot of damage to both cars, and several people could be hurt.
 
When the cost of fixing the car is $50,000 and the cost of treating the injuries is over $500,000, the driver who caused the accident may be responsible for costs that are much higher than what their insurance will cover. With an umbrella insurance policy, the extra liability costs that go beyond what your car insurance covers will be paid for.

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