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Explanation of umbrella coverage in home insurance

Umbrella Insurance Policy

What is Umbrella Insurance?  

Umbrella insurance is a type of liability insurance to goes above and beyond other policies.  

In other words, when someone who is insured is responsible for damages caused to another person, the insured person’s primary insurance policy pays its limits and any amount left over more than that limit is picked up by your umbrella policy.  

For example, let’s say you hit someone with your car and it costs $100,000 to repair.  If your insurance only pays up to $50,000 in repairs, the umbrella policy will pay the remaining $50,000.

How Does Umbrella Insurance Work?

Many insurance policies provide a certain type of coverage. For instance, if you are in a car accident your auto policy protects you from accident damage regardless if you think it was your fault or not. If your personal belongings are stolen from your house, your homeowners insurance protects you from theft or damage. Umbrella insurance is a bit different in the sense that it covers most aspects of your financial life —just like an umbrella covers your whole body when it rains. So anytime you exceed your liability limits on your other policies, the umbrella insurance acts as a back up to take care of the extra costs so you don’t have to pay out of pocket.  

The objective of an umbrella policy is to protect you from lawsuits and from you losing your assets.  With many insurance policies, specifically auto insurance, there is a maximum liability premium. However, damages in a lawsuit can exceed millions of dollars. Having an umbrella policy prevents a lawsuit form wiping out your assets and your accounts. Also, if you are sued for damages that your other policies don’t’ cover such as an accident you cause when vacationing, and umbrella policy protects you here too.

What Umbrella Insurance Covers

Here are a few types of damages covered by an umbrella policy:

Bodily injury

Your umbrella policy will cover damage costs if you cause injury to another person in a car accident and their medical bills soar beyond the limits of your auto coverage. If you have a dog breed that is typically considered “high-risk” and accidentally bites someone on your property, the umbrella insurance picks up the costs. 

Property damage

An umbrella policy will pay for damage beyond your auto insurance limits if you accidentally crash your car through your friend’s fence and hit the side of their house. This type of insurance also covers what your homeowners insurance won’t pick up. For example, let’s say you’re over your neighbor’s house and junior breaks an expensive piece of furniture. 

An umbrella policy will cover the damage, at no expense to you.

Types of legal damage

Have you ever been so upset with someone that you just had to trash talk them to your neighbors? It happens to all of us, but you can be sued for that. If you are being sued for libel or slander, an umbrella policy has you covered there too. It can also protect you from a slue of other civil charges as well.

Legal fees

A benefit to having umbrella insurance is that it will help pay for legal fees and court costs if you should find yourself in such a predicament.  

Types of Damages NOT Covered By An Umbrella Policy

Damage caused by a business

Owning a home can be costly. Eventually, general wear and tear will take over and you will have to call a local business to come and take care of the problems. Whether it’s a roofer, electrician, or plumber – if they accidentally fall in your home and you don’t have a business umbrella insurance policy, you are liable for their injuries.  

Malpractice lawsuits

Most medical professionals sincerely do want to help you. But sometimes oversights and mistakes happen. Many people wonder if their insurance will cover medical malpractice and the answer is a hard no. Since this is a professional matter and not a personal one (although it may feel like it), you need a professional or business policy to cover damages.

Who Can Benefit From An Umbrella Policy?

People who already have established assets they want to protect are prime candidates for an umbrella policy. If you get sued, you could lose any assets you worked hard for, along with the net worth you have incurred through the years. 

If you’re just starting out, you may want to consider an umbrella policy. If you ever get sued and you’re not working, the courts can garnish any future wages you may earn to pay for damages. Umbrella liability insurance protects your “bigger picture”, and ensures you are getting the proper protection.  

Personal umbrella policies are comprised of homeowners and auto insurance in excess. Umbrella policies are inexpensive because they kick in after you’ve exhausted your liability coverage under your auto or homeowners insurance. If you’re looking for extra cash to afford the umbrella policy, why not try raising your auto and homeowners insurance deductibles. Boosting your deductibles could reduce your premiums by hundreds of dollars.

Make sure you do your research and look into your home state’s homestead laws which can protect your property from being named in a judgment. You must also live in a state for a certain period of time to qualify as a resident.

Umbrella insurance is perfect for anyone who has anything of value worth protecting. It protects you when you’re sued, after a disaster that has happened on your property, or if you unintentionally cause harm to another person.  

When you run over the limits on your other policies, umbrella insurance can take care of the rest.

Do You Need Umbrella Insurance Coverage?

Perhaps. Even if you do carry sufficient insurance for your car, small business, or house, an unexpected lawsuit can stop you dead in your tracks.

That’s where umbrella insurance steps in. It’s insurance that provides a low-cost premium to allow policyholders to cover liability that goes above and beyond the limits of your conventional coverage. It can also prevent you from jeopardizing your financial future.

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