Chances are that if you own your own home you already have a homeowners insurance policy and that if you are a driver you have auto insurance. You may feel like these policies are enough to protect you, and for many people, they may be. However, very expensive accidents, lawsuits, and other costly mishaps could easily exceed your policy limitations. When this occurs, you could be on the hook for hundreds of thousands, or even millions, of dollars worth of liability. An umbrella policy can help protect you from this threat. The following article will provide basic information about what an umbrella policy is, and it will also explain how to determine your coverage under the policy.
What Is An Umbrella Policy?
An umbrella policy is a type of insurance that is designed to fill in the gaps in coverages by your regular insurance policies. This typically results when your regular insurance policy’s maximums are exceeded. For example if you have $300,000 in coverage for medical expenses under your auto insurance policy. If an accident occurs and you are found liable for more than $300,000 in medical expenses, then the rest of that money would have to come out of pocket. An umbrella policy would protect you from these out of pocket expenses by kicking in and providing additional coverage after your primary coverage is maxed out.
What Is Generally Covered Under An Umbrella Policy?
In addition to the example given above for an auto accident, other types of damages that are typically covered would be other expenses that exceed the limit in your auto or homeowners policies. A major and important coverage is the protect you receive from lawsuits. Everyone knows that we live in a very litigious time and if someone has an accident on your property or otherwise feels that they have been wronged by you, then you may find yourself involved in a very expensive legal battle. An umbrella policy will protect you from costly settlements and damages. Umbrella policies we even often assist with the cost of legal services.
What Other Benefits Do Umbrella Policies Provide?
You may feel that you do not need an umbrella policy because you do not have an extensive amount of assets. However, another major benefit of having an umbrella policy is the way in which it protects your future earnings and assets. In some worst case scenario lawsuits you could find yourself with an obligation of paying a percentage of your future income for the damages you owe. An umbrella policy will help protect your future earnings and assets from this threat. Perhaps the greatest benefit offered by an umbrella policy, however, is peace of mind that comes with knowing that you are truly and fully protected.
How Do I Calculate My Coverage Under An Umbrella Policy On Any One Particular Area?
Umbrella policies are usually sold in increments of $500,000 to $1,000,000. Thus a typical Umbrella policy may cover up to $1,000,000, $2,500,000, $3,000,000, etc. Once you know the coverage amount offered by your umbrella policy you would then add that amount to the coverage offered by your base insurance policy. For example if you have homeowners liability coverage is $500,000 and your umbrella policy is for $2,000,000, then altogether you have coverage of up to $2,500,000 in this area. Because umbrella policies are designed to be on top of other policies, there are also very often minimum base insurance requirements in place before you can be approved for an umbrella policy. Amounts will vary from company to company, but typically you see figures in the area of:
- Homeowners insurance personal liability coverage of $500,000
- Auto insurance bodily injury coverage of $250,000 per person/$500,000 per accident
- Auto insurance property damage coverage of $100,000 per accident
That means that before you can get an umbrella policy these minimums would have to be met on your other insurance policies.
It can be very tricky and overwhelming to determine if you need an umbrella policy or not. To get started it is a good idea to review your other insurance policies so that you can determine what coverage amounts are currently in place. It is often also very helpful to speak with your insurance agent since they can usually advise you based on your particular situation. Umbrella policies aren’t for everyone, but for many people they are the ideal solution to a financial rainy day.