Umbrella Insurance Policy

What Is an Umbrella Insurance Policy and How Does It Work?

An umbrella insurance policy provides additional liability coverage beyond that provided by the insured's house, vehicle, or watercraft insurance policies. It gives persons who are at risk of being sued for damages to other people's property or injuries caused by an accident an extra layer of protection. It also shields you from libel and slander.

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TAKEAWAYS IMPORTANT

• An umbrella insurance policy is a sort of personal liability insurance that extends beyond the limits of standard house or auto insurance.
• You must first have a basic homes, auto, or watercraft policy in order to purchase umbrella insurance; the umbrella policy kicks in when the regular coverage has been spent.
• People who have significant assets or potentially hazardous items, or who engage in activities that enhance their risk of being sued, are good candidates for umbrella insurance.

What is an Umbrella Insurance Policy and How Does It Work?

High-net-worth individuals who own a lot of assets—or extremely expensive assets—and are at a high risk of being sued can benefit from the additional coverage provided by an umbrella insurance policy. Small businesses also utilize an umbrella insurance coverage to protect themselves from monetary losses resulting from claims.

When an umbrella insurance coverage is acquired from the same insurer that supplied the original vehicle, home, or watercraft insurance, the rate may be lower. A policyholder who wants to add an umbrella insurance policy must have a base insurance coverage of $150,000 to $250,000 for vehicle insurance and $250,000 to $300,000 for homeowners insurance, depending on the provider.

Excess liability insurance is another name for umbrella insurance. An umbrella policy helps pay what a policyholder owes if they are sued for damages that exceed the liability limits of their car insurance, homeowners insurance, or other types of coverage. In other words, if the original policy's dollar limit has been reached, the umbrella policy serves as a fail-safe, preventing the insured person from having to dip into savings or other assets.

Particular Points to Consider

People who get umbrella insurance on a regular basis are likely to possess expensive property or have substantial savings. 

Alternatively, they may be in possession of potentially harmful items (swimming pools, trampolines, dogs, etc.). They may also engage in behaviors that enhance their risk of being sued, such as:

• Being a landlord is a challenging job.
• Sports coaching for children
• Being a member of a nonprofit's board of directors
• Volunteering
• Posting product and business reviews on a regular basis
• Participating in sports in which you have a high risk of injuring others (skiing, surfing, hunting, etc.)

An umbrella insurance policy is an example of a policy that covers a wide range of risks.

Consider the following example to see how umbrella insurance can help. If a driver runs a red light and collides with another vehicle, the vehicle may sustain considerable damage and multiple persons may be hurt.

With car repairs costing $50,000 and medical care for the injuries exceeding $500,000, the at-fault driver may be held accountable for costs that exceed their insurance coverage limitations. An umbrella insurance policy will cover additional liability costs above and beyond the limitations of your car insurance policy.