You probably don’t think about it until you need it: how will you manage if you get sick and can’t work, or if the same happens to one of your parents or partners? What if you break a leg and cannot go to work for several weeks? What if your car is destroyed in an accident, or catches fire? In any case, unless you have substantial savings or other resources, such situations can become quite stressful. To help cope with these potential costs, many people choose to purchase so-called “Umbrella Insurance” policies. These are insurance policies that complement the coverage provided by standard personal liability policies. In this article, we explain what Umbrella Insurance is and why do you need it, and we list the main types of coverage that fall under the umbrella term.
What is Umbrella Insurance?
An umbrella insurance policy, also known as excess liability insurance, provides coverage above and beyond other policies that exist in your household. For example, if you have a car insurance policy that covers $30,000 worth of damages to another person’s property, an umbrella policy can cover the remaining $70,000 in damages if you are sued. If you are sued and do not have insurance to cover your legal costs, you could lose your assets, including your house. If you have an umbrella policy, it will protect your assets so you do not lose them if you have to pay out a lot of money to defend yourself in court.
How does Umbrella Insurance work?
As we mentioned above, Umbrella Insurance policies are designed to cover the gaps in your existing policies. For example, if you are hit by a car and suffer injuries that require hospitalization and ongoing treatment, your Personal Liability coverage will pay for the medical costs, loss of income, and other related expenses. As this coverage is often capped at $300,000, Umbrella Insurance kicks in to cover the rest. There are two basic types of Umbrella Insurance policies: Umbrella Liability, and Excess Liability. Umbrella Liability policies provide broader coverage — up to $1 million in most cases — and extend protection to other members of your household by covering the legal defense costs associated with a lawsuit. Excess Liability policies provide protection above and beyond your standard policies. For example, if you have a car insurance policy that covers $300,000 worth of damages to the third party, an Excess Liability policy will cover the remaining $700,000.
Who needs Umbrella Insurance?
Anyone who owns assets, works in a profession that is likely to be hit with lawsuits, or has dependents who rely on their income should consider purchasing an Umbrella Insurance policy. Professionals such as doctors, teachers, or public officials who deal with children have a higher risk of being hit with lawsuits. Some people, such as real estate agents, government workers, and school bus drivers, are required by law to have certain levels of liability coverage. As with all forms of insurance, there are many factors that go into determining your specific needs, such as the value of your assets, your annual income, the ages of your dependents, and your risk of being sued. If you’re not sure what level of coverage you need, you can always consult with a licensed insurance agent who can help you determine how much coverage you’ll need.
Other Types of Coverage under an Umbrella Policy
Although the main reason to get an umbrella policy is to protect yourself from lawsuits, there are other types of coverage that you can add to your policy. Standard umbrella policies usually have the following types of coverage. Property Damage Liability: Covers the costs associated with damaging another person’s property, such as vehicle or property damage, or environmental damage. General Liability: Covers the costs associated with bodily injury and property damage that you cause to another person. This can include medical and therapy bills, loss of income, and other related expenses. Professional Liability: This type of coverage protects you if you’re sued for malpractice. It also covers you if you are found guilty of malpractice, but your state doesn’t require you to have malpractice insurance. Umbrella Liability: This type of coverage protects you and your family members against lawsuits. It also covers your legal defense costs if you are found guilty of a lawsuit against you.
Final Thoughts
As this article shows, Umbrella Insurance policies are a good investment for most people. If you are sued, you can rest assured that you will be protected thanks to this policy. At the same time, you will also receive broad coverage for other types of accidents, such as environmental damage, or injury to third parties. There are numerous advantages to having an umbrella insurance policy, and the only real drawback is the cost of the policy. While the price of this coverage varies depending on your specific needs, you can expect to pay a premium of roughly 10-12% of your annual income. For most people, this cost is well worth the added protection. If you don’t currently have a personal umbrella policy, now is a good time to look into getting one.
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