Umbrella insurance isn’t intended to help you keep out the rain. On the other hand, it might help you keep a roof over your head. This kind of policy gets its name because it broadens and extends typical liability policies. If you have worked hard to accumulate some assets, you might consider buying a personal umbrella insurance policy to protect your finances and your family.
Umbrella Insurance Extends Base Policies
The first thing that umbrella insurance does is extend the amount of coverage you might have on your base policies. Typically, auto and homeowners insurance are considered the base policies for individuals. This is because they pay first, and then umbrella insurance begins to pay after the coverage from the base policy has been used up.
If you or a family member gets blamed for causing property damage or an injury, the damage claim might easily exceed the maximum coverage limits of a regular auto or home insurance policy. For example, required liability insurance differs by state. The coverage limit for auto liability insurance is not that high in some places. There are states with a required maximum of only $15,000. It’s not hard to imagine a car accident that would exceed these limits because of property damage to a fairly new car.
You’re not off the hook just because you don’t have enough liability insurance. You may still be held liable for claims that are greater than the maximum amount of coverage you have. That’s when you may have to start writing checks, sell your house, or deplete your retirement account. If you have umbrella insurance, this policy will begin to pay the claim after your base policy has been exhausted, and you are protected.
Umbrella Insurance Provides Extra Protection
Umbrella insurance may also cover some liabilities that regular policies don’t cover. If your teenager gets accused of slandering a teacher, your regular homeowners insurance won’t cover legal expenses or the cost of a settlement. However, your umbrella insurance might. These policies can even be customized to cover more unusual risks that people in particular situations might run into. Businesses can also buy commercial umbrella insurance that is tailored toward their own needs.
This kind of coverage is usually purchased in units of $1 million. Most people base the amount of coverage on the size of their assets. Average premiums aren’t usually that high for the amount of coverage that the policies provide, and it might be a better and less expensive way to enhance your security than adding more coverage to base policies.
Should You Consider an Umbrella Insurance Policy?
Do you have a house, savings account, and other assets that you want to protect? Do you want to make sure your future earnings are secure against a judgement? If so, an umbrella policy may be a fairly inexpensive way to enjoy the security of knowing that you can protect your assets.