Insurance of any kind is a proactive step that a majority of people in the US and around the world take to protect themselves and their families. From home insurance to property damage and auto insurance, insurance covers liability claims that might result in case of a devastating event.
But these insurance policies independently have their limitations. This is the moment when umbrella coverage or umbrella insurance comes into play. In a few words, you can say that umbrella coverage is a supplemental insurance policy that goes beyond basic liability policies.
It is a way for you to protect your assets from being wiped out if you have to go through an unforeseen event where you might have to pay more than what your basic insurance policy covers. Let’s take an accident as an example. If you are in a car wreck involving another car that might have suffered injuries and/or damages and you are held responsible for it, umbrella coverage will pay for them up to the limit the policy allows.
For instance, consider that you are held liable to pay 700,000 dollars in liabilities for the other person’s damages and injuries. Your basic insurance policy will cover only $200,000 dollars, which means you’ll have to pay the rest out of your pocket or face legal action. But if you have an umbrella policy in place, it will cover the remaining $500,000. And depending on the limit, it might also cover the legal fees.
This will save you having to wipe off your assets and/or retirement funds to cover the liabilities. Here’s a brief look into what an umbrella policy covers and doesn’t cover.
Brief Overview of Umbrella Policy
In other terms, an umbrella policy is an overarching liability coverage policy that covers liabilities beyond the limitations imposed by a home owner’s or auto insurance policy. One important point to note here is that umbrella policy does not apply to health or life insurance.
What it Covers
An umbrella policy covers any litigation that arises from property damage that isn’t included in auto and homeowners policies. For instance, if your dog breaks an antique at a friend’s place, your kid draws on an expensive painting, or you crash a rental car, an umbrella policy takes care of the liabilities.
Any damages and injuries that are not covered in the traditional homeowners’ policy, umbrella policy does. For example, if a contractor injures themselves on your patio or you injure someone accidentally in a car crash, umbrella policy pays for the medical bills.
If you are sued for slander or libel against anything you might have spoken or written to cause injury to another person, umbrella insurance can cover the civil charges. Along with that, umbrella policy also covers any legal fee that comes with a lawsuit.
What it doesn’t Cover
An umbrella policy covers any liabilities and litigation that arises from property damage, injury, and associated legal fees for other’s people’s injuries or property damage. However, there are some limitations to it, particularly when you cause damages to your own property.
For example, if a leak in the bathroom damages the drywall in your own home, umbrella coverage won’t cover it. But if the same leak causes damage to a neighboring house, an umbrella policy may cover the damages.
An umbrella policy also doesn’t cover any malpractice lawsuits, intentional injury or property damage, workers’ compensation claims against you as an employer, and business loss. Also, anything that is covered by a health or life insurance policy is not covered.
In a nutshell, an umbrella policy can help you out if you’re being sued for damages and injuries caused to other people. Since homeowners’ and auto insurance policies don’t cover these liabilities, an umbrella policy can be a savior in those instances.
Umbrella insurance policies are generally sold in $1 million units, with $1 million increments from there onwards. This means that the smallest umbrella policy you buy is worth $1 million. As for the costs for the coverage, it depends on various factors, including where you live, your income, previous lawsuits, driving record and more.
The best way to get an estimate for what an umbrella insurance policy will cost you is to talk to an insurance company. They will take into consideration different aspects and give you an estimate based on that. IHS Insurance licensed experts on the job that can help you there. You can contact them here for a consultation or for any other insurance needs you might have.