The ins and outs of umbrella insurance
Just as an actual umbrella shields you from rain, umbrella insurance protects you from perils that might be too big for your regular insurance to cover. Here are some key things you need to know about this type of insurance.
What is it?
An umbrella policy is a type of supplemental liability insurance that kicks in to provide extra protection after you have reached your liability limits on other policies, such as your homeowners or auto insurance.
How does it work?
An umbrella policy kicks in if necessary once you have reached your liability limits on your other insurance policies. For instance, if you have $250,000 in liability coverage on your homeowners policy and you get hit with a judgment for $500,000, your umbrella policy would pay the other $250,000 that your homeowners policy doesn’t cover, assuming your umbrella limit is that high. Umbrella policies also might cover a situation that your other policies exclude, such as libel or slander. Umbrella policies do not pay anything if your liability coverage covers the event and has a limit that is sufficient to cover the damages.
Who is it for?
Anyone can benefit from having an umbrella policy, but such coverage is especially important for people with a lot of assets that could be subject to forfeiture to cover a judgment.
Different types of policies
Umbrella coverage usually comes in two types: personal and commercial. Personal umbrella coverage usually works in concert with your home and auto policies to provide personal coverage. A commercial policy works in concert with your business liability policy to cover your business against loss.
Many people carry the minimum amount of liability coverage the law allows, especially when it comes to auto insurance, and that may not be enough if you are found responsible for seriously injuring someone. The main benefit of umbrella insurance is that it provides a backup if your regular insurance comes up short, which will prevent you from being personally responsible to pay a judgment.