What Is Umbrella Insurance and Why Do I Need It?

Wednesday, February 27, 2013

What is Umbrella Insurance and Why Do I Need It?

  • An umbrella policy is an extra layer of liability insurance that can pay for medical, court or other expenses you may be required to pay after basic home and car insurance policies stop. Coverage levels start at $1 million and can run up to $10 million and beyond. In most cases, policyholders add this policy onto current coverage using the same insurance provider.
  • Umbrella policies are inexpensive because they kick in only after you’ve exhausted your liability coverage under your auto or homeowners policy. Most insurers first require you to have $300,000 or $500,000 in liability coverage on your car and home. For example, if you have $500,000 in liability insurance on your auto policy and a $1-million umbrella policy, you’ll have a total of $1.5 million in liability coverage
  • An example of when you might need Umbrella Insurance is in the event of an auto accident with you or another member of your family behind the wheel. Icy conditions send you careening into an oncoming car. Passenger(s) in the other car are injured and sue you. In a court of law a judge awards them $1,000,000 in damages. Your auto policy has a limit of $250,000. The balance of the amount awarded by the judge would be paid by your umbrella policy. Without the umbrella policy a judgment could be placed on your home and other assets. Another example would be a visiting child falls on your property and is injured. The parents sue you for $1,000,000. Your Homeowners policy has a liability limit of $300,000. The balance here again would come from your umbrella coverage.

  • Are you a risk? Start out by analyzing the likelihood of getting hit with an injury claim or lawsuit by someone else. Those who are more at risk might have dogs–average cost of dog-bite claims are up about 30% since 2003–pools, where more than 3,200 drownings occur per year, or teenage drivers who are involved in 13% of fatal car accidents.
  • Are your assets at risk? Families with assets, including homes, retirement savings, brokerage accounts, and cars, will need to protect them with an umbrella policy, which would otherwise be up for grabs since basic policies only cover a portion of these assets.

Today, lawsuits are everywhere. Courts are awarding larger amounts of money than ever. Homeowners, auto, and watercraft policies have a limit on liability insurance. If an unfortunate accident should happen, do you have enough liability insurance from your current policies to cover your costs for negligence? Since no one can predict how much a judge may award the injured person, Umbrella Insurance is needed protection for every policyholder.