Umbrella Insurance — What Is It and Why Do You Need It?
- February 10, 2022
- Posted by: Guerrilla Group
- Categories: Auto Insurance, Insurance, Personal Lines
An umbrella liability insurance policy is generally purchased to protect the purchaser when other forms of insurance are exhausted. Umbrella insurance generally takes into effect when the other forms of insurance such as auto insurance or homeowners’ insurance are depleted.
If the policy holder is sued for damages that are set to exceed the liability limits set in their specific insurance policies, the umbrella policy assists in paying the determined amount in the lawsuit. An umbrella insurance policy can provide insurance coverage for injuries, property damage, certain lawsuits and personal liability situations.
How umbrella insurance works
Umbrella insurance provides “excess liability insurance” or additional coverage to specific policies, beyond the liability that is stated in each of these policies. Umbrella insurance is purchased concurrently with your other policies—it is not a stand-alone policy.
If a driver were to run a red light and cause an auto accident, with multiple injuries resulting in medical claims totaling $275,000 and both vehicles in the accident require repairs totaling $25,000. Additionally, the driver that caused the accident was sued for loss of wages amounting to $200,000. Bringing the total cost of the accident to $500,000. In this case the insurance policy limit was $300,000—the guilty party would be responsible to pay $200,000 out of pocket.
However, if the policy holder also had umbrella insurance, it would take into effect after the policy liability of $300,000 was exhausted. The remaining $200,000 would be covered under the umbrella insurance policy assuming that the policy liability was to exceed that amount.
What is covered under umbrella insurance:
- Liability in excess of car/home insurance policy limits
- Libel and slander
- False arrest
- Malicious prosecution
- Personal psychological harm and mental anguish
- Legal defense costs for covered losses
- Liabilities when traveling overseas
- Other things not covered by home and auto policies
Do you need umbrella coverage?
We recommend a policy holder should consider umbrella coverage if they have the following:
- A dog or other pet that could cause harm or damages to others or property
- A swimming pool, trampoline, or playset
- Teen drivers
- A high net-worth and want to protect their future earnings