An insurance umbrella policy, also known as excess liability insurance, acts like a safety net for your existing insurance coverage. It provides an extra layer of financial protection in case you face a legal liability claim that exceeds the limits of your primary insurance policies, such as auto or homeowners insurance.
Here’s how it works:
- Primary Coverage: Let’s say you have a car accident and are found responsible for causing $100,000 in damages. Your auto insurance policy with a limit of $50,000 would cover the initial $50,000.
- Umbrella Policy Kicks In: However, you’re still on the hook for the remaining $50,000. This is where an umbrella policy comes in. If you have a $1 million umbrella policy, it would cover the remaining $50,000, protecting you from having to pay out of pocket.
What does an umbrella policy cover?
- Personal liability claims like bodily injury or property damage caused by you or your family members.
- Legal defense costs if you’re sued.
- Coverage for certain claims not covered by your primary policies, such as defamation or libel.
Who needs an umbrella policy?
- High-net-worth individuals with significant assets to protect.
- Professionals with high liability risks, such as doctors, lawyers, or engineers.
- Anyone who wants extra peace of mind knowing they have additional financial protection.
Things to consider before getting an umbrella policy:
- Cost: Premiums for umbrella policies are relatively low compared to the potential financial protection they offer.
- Deductible: Most umbrella policies have a deductible, which is the amount you must pay out-of-pocket before the policy kicks in.
- Underlying Coverage: You typically need adequate primary insurance coverage (auto, homeowners) before being eligible for an umbrella policy.
Overall, an umbrella policy can be a valuable addition to your insurance portfolio, offering peace of mind and financial protection against unforeseen liability claims.
