What is Umbrella Insurance? How to work.

Umbrella insurance is a type of personal liability insurance that can save you a lot of trouble if you wind up being sued for more than your home or car insurance will cover. Your boat’s liability insurance will not cover everything if someone gets hurt on your boat. This is where umbrella insurance comes in.

Some liability claims, like libel, slander, and false imprisonment, may not be covered by the other policies. However, umbrella insurance does. When you own rental property, umbrella insurance protects you from liability in addition to your renter’s policy.

How does It work?

Umbrella insurance works by kicking in after your other liability policies have reached their limits.

For example, if you have $100,000 in liability coverage on your homeowners insurance policy and you are sued for $200,000, your homeowners insurance would pay the first $100,000 and your umbrella insurance would pay the remaining $100,000.

As you can see from these examples, umbrella insurance doesn’t just protect the policyholder; it also protects other people in their family or household. You can sleep better at night if your teenager isn’t the best driver because your umbrella policy will pay for other people’s medical bills if your kid is found to be at fault in a major accident. Additionally, make sure you know what a “household member” means in your policy so you can get the coverage you need.

Also, you may have noticed that your umbrella insurance covers things that happen on top of your home and car insurance. The damage doesn’t have to be to your home or car for your umbrella insurance to pay for it. Also, you’re covered all over the world, except for homes and cars that are owned legally in other countries.

Cover  and Not Cover

Here is quick reference for umbrella (Personal Liability) coverage

Usually Covers Usually Does Not Cover
Claims beyond coverage provided by home, rental, auto, watercraft policies for injury/damage to people/propertyDamage to policyholder’s own property (e.g., home, car, possessions)
Policyholder plus members of householdDamage/injury that policyholder causes intentionally or criminally
Malicious prosecution, wrongful entry, invasion of privacyDamage/injury from or during business or professional activities
Libel, slander, false imprisonmentLiability assumed contractually
Attorney fees/other expenses related to lawsuitsLiability related to armed conflicts

Do you need one?

There is definitely some fear involved in the choice to get one. There are a lot of insurance companies that say you need it because of the fact that anyone can sue you for anything and ruin your finances.

In many news stories about personal liability horrors, juries gave victims huge judgements that people had to pay. But how likely is it that you’ll be in that kind of situation? Do you really need insurance for your umbrella? Well, I think you has your answer.