Umbrellas serve a variety of purposes, from keeping you dry during a rain storm to providing shade from the hot summer sun. But did you know there is another type of umbrella that can help protect your way of life? Here’s what you should know about umbrellas when it comes to insurance.
1. What is an Umbrella Insurance Policy?
Umbrella insurance policies provide additional insurance that takes over when a claim surpasses the limits available under your homeowners or auto insurance.
2. Do I Really Need an Umbrella?
While your homeowners and auto insurance provide some liability coverage, if you are held liable for an accident and the cost surpasses your policy limits, you will be left to pay the remainder out of your own pocket. In order to cover the costs, you could be forced to use money from your current assets, such as savings, retirement accounts, your home, or even future earnings. The good news: an umbrella policy can provide you with extra liability coverage, and it is relatively affordable as well.
3. What Puts Me at Risk?
Most people need an umbrella policy to adequately protect their current assets and future earnings. There are many risk factors that increase your need for an umbrella policy, such as:
- Owning rental properties
- Owning a swimming pool
- Having a teenage driver
- Entertaining guests
- Driving a high-performance sports car
- Driving for a car pool
- Driving at all
- Actively participating in online social networks
- Owning a dog
These factors could lead to you being personally liable for accidents causing property damage or injury, which could then lead to a lawsuit. A typical auto or home policy’s limits may be quickly exhausted for a more serious event. Thus, having an umbrella is a critical step in risk management. Mitigating risk as much as possible is also wise. This includes avoiding distractions while driving and keeping the gate locked to your pool.
4. How Much Coverage Do I Need?
Policies are generally available through most insurance companies starting at $1 million to $10 million. Specialty insurance companies can write umbrella policies up to $100 million. The amount of coverage you need depends on your underlying liability limits on your home and auto policies, and the cost will depend on a variety of factors including where you live, how many homes, automobiles, and boats you own, and the age and number of drivers on the policy (availability varies by state).
5. How Does the Coverage Work?
If there is a covered liability claim under your auto or homeowners policy and the dollar amount of the judgment is greater than the coverage limits you have purchased on those policies, the umbrella coverage goes into effect. Certain coverage limits must be met on your auto and home policies before you can purchase an umbrella policy.