What is Umbrella Insurance?

At some point, you have probably heard of umbrella insurance, but have no idea what it is. Well, first off, it does not cover the umbrella you protect yourself from the rain. It is a figure of speech. An umbrella policy is designed to shield you from almost everything that your home and auto insurance does not, as well as fill in gaps in coverage when the limits of your regular policy are exhausted.

Every day, there are personal lawsuits filed against ordinary citizens, with the reasons ranging from the frivolous to the justified. When and if this happens to you, you need to be prepared. More often than not, people are sued and have no extra protection to block the plaintiff from going after their personal assets in the lawsuit. To protect yourself from such a quandary, you need to have umbrella insurance.

An umbrella is often referred to as excess liability. This excess liability coverage kicks in when the underlying limits on your home or auto policy have been exhausted, or if you are sued personally for something that neither your home nor your auto insurance covers. Depending on the company, you can purchase anywhere from 1 to 5 million dollars worth of excess coverage, sometimes as high as 10 million. The amount of coverage you select really depends on how much you are worth. If you have 5 million dollars worth of personal assets, you should get a 5 million dollar umbrella. It is not uncommon for someone to buy a 5 or 10 million dollar umbrella policy even if that number far exceeds their net worth, because the coverage is so cheap to buy.

Most insurance companies will not offer you the coverage unless you have both your home and auto already insured with them. Also, the insurer will require that you maintain a certain level of liability on the home and auto policies in order to qualify for the excess policy. Usually, you must maintain at least $250,000 of bodily injury liability per person, $500,000 per accident, and $100,000 for property damage for your autos, and $500,000 of liability for your home.

The coverage is cheap. It is possible to obtain 1 million dollars worth of excess liability for as little as $120 dollars. The more cars and homes you have, the higher the price for the insurance, but the cost is still low. In addition to your home and cars, liability associated with any other conveyances you may have, such as boats, motorcycles, and other recreational vehicles, may also qualify for coverage under the umbrella, depending on the insurance company.

You are probably wondering when the umbrella would actually come into play. Here is an example: If you are involved in an auto accident where you crashed into a pedestrian who was walking on the sidewalk, resulting in medical expenses for that person that costed more than what your auto policy covered, the umbrella would be used. Or, if that pedestrian then decides to sue you for negligence and seeks punitive damages, your umbrella can be utilized to cover your legal expenses and to pay any judgements levied against you.

It is also important to understand that the excess liability covers you for all sorts of things that have nothing to do with your cars or homes. Things such as personal injury protection are covered. This includes false arrest, false imprisonment, malicious prosecution, defamation, invasion of privacy, wrongful entry, or eviction. Also, some umbrella policies provide coverage for you if you are sued in connection with any charitable boards or organizations of which you are a member. You may have to contact your insurance company and pay an extra premium for this type of coverage.

I hope this has helped illuminate to you the importance of having umbrella insurance. Without it, your personal assets are totally vulnerable in any lawsuit or legal action. Talk to your agent about it and ask how much it costs. Even though multi-million dollar lawsuits are not common, they can happen. So, an umbrella is probably worth it.