Umbrella Insurance: What It Is and Why You Need It
Lawsuits are everywhere. What happens when you are found to be at
fault in an accident, and a significant judgment is entered against
you? A child dives head-first into the shallow end of your swimming
pool, becomes paralyzed, and needs in-home medical care for the rest
of his or her lifetime. Or, you accidentally rear-end a high-income
executive, whose injuries prevent him or her from returning to work.
Either of these situations could easily result in judgments or
settlements that far exceed the limits of your primary home or auto
insurance policies. Without additional coverage, your life savings
could be wiped out with the stroke of a judge’s pen.
Typical liability insurance coverage is included as part of your home
or auto policy to cover an injured person’s medical expenses,
rehabilitation or lost wages due to negligence on your part. The
liability coverage contained in your policy also cover expenses
associated with your legal defense, should you find yourself on the
receiving end of a lawsuit. Once all of these expenses are added
together, the total may exceed the liability limits on the home or
auto insurance policy. Once insurance coverage is exhausted, your
personal assets could be seized to satisfy the judgment.
However, there is an affordable option that provides you with added
liability protection. Umbrella insurance is a type of liability
insurance policy that provides coverage above and beyond the standard
limits of your primary home, auto or other liability insurance
policies. The term “umbrella” refers to the manner in which these
insurance policies shield your assets more broadly than the primary
insurance coverage, by covering liability claims from all policies
“underneath” it, such as your primary home or auto coverage.
With an umbrella insurance policy, you can add an addition $1 million
to $5 million – or more – in liability coverage to defend you in
negligence actions. The umbrella coverage kicks in when the liability
limits on your primary policies has been exhausted. This additional
liability insurance is often relatively inexpensive in comparison to
the cost of the primary insurance policies and potential for loss if
the unthinkable happens.
Generally, umbrella insurance is pure liability coverage over and
above your regular policies. It is typically sold in million-dollar
increments. These types of policies are also broader than traditional
auto or home policies, affording coverage for claims typically
excluded by primary insurance policies, such as claims for
defamation, false arrest or invasion of privacy.
