An umbrella can do much more than keep you dry. An umbrella liability insurance policy gives you (and everything you’ve worked for) extra coverage that can help protect you from major claims and lawsuits.
An umbrella insurance policy is extra liability insurance coverage that goes beyond the limits of your home, auto or watercraft insurance. It provides an additional layer of protection (like an umbrella) to those who are at risk for being sued for damages to other people’s property or injuries caused to others in an accident. It can also protect against libel, vandalism, slander and invasion of privacy.
An umbrella insurance policy kicks in when the insurance owner is sued and the dollar limit of the original insurance policy has been exhausted. The added coverage provided by liability insurance is useful to individuals who have a lot of assets, very expensive assets or are at significant risk for being sued.
Umbrella insurance is often referred to as excess liability insurance. It acts as a fail-safe for your savings and other assets. If you are sued for damages that exceed the liability limits of your car insurance, homeowners insurance or other coverage types, the umbrella liability policy helps pay what you owe. It may also provide coverage not included in a base insurance policy.
Examples of the coverage provided by an umbrella liability insurance policy may include:
Bodily injury liability covers the cost of damages to another person’s body. Examples include the cost of medical bills and/or liability claims due to injuries caused by:
Property damage liability covers the cost of damage or loss to another person’s property. Examples include the cost associated with damage to vehicles and other property due to an auto accident where you are at fault.
Owners of rental units help protect against liability that you may face as a landlord. Examples include the cost of liability claims due to:
Coverage may also be provided if you’re sued for:
Most purchasers of umbrella liability insurance usually own property, have significant savings or they may own dangerous things that can cause injury (pools, trampolines, dogs, etc.). They might also engage in activities that increase their chances of lawsuits, such as:
The premium for an umbrella liability insurance policy may be less expensive if the policy is purchased from the same insurer that provided the original auto, home or watercraft insurance. Depending on the provider, adding umbrella liability insurance policy requires a base insurance coverage of $150,000 to $250,000 for auto insurance and $250,000 to $300,000 for homeowners insurance.
Here’s an example of how an umbrella liability insurance policy might work:
I believe that umbrella liability insurance should be an important part of nearly everyone’s financial plan. It’s unfortunate, but in today’s increasingly litigious environment, all of us are exposed to potential lawsuits. The extra level of protection that umbrella liability insurance can provide, usually at a very reasonable cost, might just be enough to save your retirement or other financial goals in case you are sued.
How much coverage should you get? That depends on your specific situation. Any true financial plan will include a review of all of your current insurance coverage (life, disability, health, auto, homeowners, etc.) and provide recommendations on any changes that should be made to your coverage.
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