Life is unpredictable and nobody is perfect. Therefore you opt for liability insurance that can help avoid financial distress if you accidentally cause major injuries or property damage to others. But, the problem arises when your liability insurance provides just the bare minimum. In such a context, an umbrella insurance policy comes to the rescue. What is it all about and how does it work? Let us find out in this comprehensive guide.
What is an Umbrella Insurance Policy?
In simple words, an umbrella insurance policy can be defined as an extra liability insurance coverage that transcends the limits of a quintessential liability insurance already existing in your auto, homeowners or watercraft insurance policies. Therefore, an umbrella insurance policy offers an additional degree of security to those who may be held liable for harm caused by an accident or property damage to third parties.
Umbrella insurance’s purpose is served for expensive scenarios wherein medical bills or repairs exceed the ‘base’ auto, homeowners or boat insurance plans. So, in other words, an umbrella insurance policy helps keep your assets intact and ensures that you do not lose them to pay for a lawsuit judgment against you.
How Does an Umbrella Insurance Policy Work?
Simply put, an umbrella insurance policy works when the liability limit of your home or car insurance has reached its base limit. The extra coverage that an umbrella insurance policy offer is especially useful for high net worth individuals owning several or highly expensive assets, and are at a pertinent risk of being sued. Even small enterprises can leverage the merits of an umbrella insurance to get protection against potential monetary damages arising out of claims.
Some of the common situations when umbrella insurance works are –
You Cause a Serious Boat or Auto Accident
The bills caused by auto or boating accidents can pile up quickly, especially if you are liable for the medical bills of multiple people. Of course, your auto or boat insurance plan would pay first, but it has its limits. Thereafter, your umbrella insurance will take things forward and cover for the additional expenses.
- Your Pet Dog Bites Someone
Dog Bites are usually covered by your insurance policy’s personal liability coverage. But, if you have already been sued above your home insurance liability limit (such as medical bills and suffering), your umbrella insurance will start paying.
- You Accidentally Injure Someone
Accidents happen and, at times, you or one of your loved ones might be at fault. In such a situation, umbrella insurance helps cover the expenses when your home or auto insurance is exhausted. For example, if you injure someone while gardening and cause extensive injury to someone, your homeowner’s liability insurance will pay first, followed by the umbrella insurance.
Your Car Rams into a Building
It is quite a common scenario for cars to ram into buildings. It happens when you are parked very close to a convenience store, such as a building, and you put the car in drive rather than reverse.
Also read: Here Are 8 Insurance Tips For Homeowners!
And, then boom – the destruction happens. In such a scenario, your insurance pays for the damages then your umbrella insurance follows suit (provided the limit of your auto insurance is not enough)
- You Are on the Board of Directors of a Charity and are Sued for a Board-related Issue
Umbrella insurance may also cover board of director litigation. Umbrella coverage may depend on whether the board is a non-profit and whether you are paid for your services.
Your Teen or Child Has Been Sued
It might sound strange but even teenagers and children are being sued for an array of reasons. For instance, if your teenage boy posts an offensive comment online and the culmination is a lawsuit against you. The umbrella insurance helps for the legal costs and judgements. Similarly, if your child damages someone else’s property, your home insurance will pay out first, then the umbrella insurance will do its duty.
Now that we have briefly understood how an umbrella insurance policy works, let us understand its inclusions and exclusions.
What Is Included in an Umbrella Insurance?
An umbrella insurance covers an array of problems and offers funds above and beyond the threshold of your typical insurance policies, such as auto insurance or homeowner’s insurance. Some of the common aspects covered by an umbrella insurance plan are –
- Bodily injury to others
- Causing property damage to others
- The legal costs of defending you in related associated with damages caused to other people, such as accidents and injuries
- The legal costs of defamation lawsuits like libel, slander and invasion of privacy
What Is Excluded from an Umbrella Insurance Policy?
To begin with, umbrella insurance does not cover injuries or damages to your property. Some of the typical exclusions of an umbrella policy include –
- Business losses
- Criminal acts done by you
- Damage due to terrorism, war or nuclear radiation
- Written or oral contracts
- Intentional acts or injury caused by you
- Communicable diseases, such as a lawsuit filed against for giving someone herpes
Who Needs Umbrella Insurance?
Usually, umbrella insurance is considered the need of the elites, who own expensive property or have gargantuan savings. Moreover, the policy is also relevant for people who own dangerous things that can cause injury, such as trampolines, swimming pools, etc. Furthermore, an individual needs to have a minimum level of home and auto liability insurance to purchase umbrella insurance.
Some of the contexts that make umbrella insurance essential are –
- Being a landlord
- Being the coach of a kids’ sports team
- Serving on the board of a non-profit organization
- Regularly posting reviews of products and businesses, such as being an influencer or a content creator
- Participating in sports where the chances of injuring others is prominent
Wrapping It Up
So, there we have it, a crisp and clear explanation of what an umbrella insurance policy is, how it works and what it includes and excludes.