What Is Umbrella Insurance & What Does It Cover?

Insurance policies come in may forms: health, life, homeowners, renters, the list is long. However, all of these policies have a commonality. they all have limits on the protections they provide, and those liability limits can be exhausted given the right (or wrong) unfortunate circumstances. For that, people turn to an umbrella policy.

What Is Umbrella Insurance

Insurance is often thought of as a financial safety net should an accident happen. If a person is in a car accident, auto insurance will cover the cost of repairs. Umbrella insurance cover can be thought of as a safety net below the safety net. If the same auto accident above damages multiple vehicles or someone else, it’s possible (even likely) that the standard auto insurance policy won’t cover the cost of all of those repairs and medical bills, in which case the policyholder is liable for the remainder. This is where umbrella insurance policy comes in. Umbrella insurance can help to offer additional personal liability coverage to your home, auto, or other liability insurance, should those primary policies not be sufficient enough to cover an accident for which you are at fault.

How Does Umbrella Insurance Work

The key takeaways to understand about Umbrella insurance are:

  • An umbrella policy is a personal liability policy that covers costs in excess of your primary insurance policy
  • An umbrella policy covers the liability of you and your family/household, but does not protect your property
  • The primary policy payout must be exhausted before an umbrella policy will pay liability claims

An umbrella policy is primarily used to cover personal excess liability coverage for injury to others on your property and other people’s property damage for which you (or a family/household) member are at fault. It specifically does not cover personal injury or damage (accidental or intentional) to your own property.

An umbrella policy is also subject to the exhaustion of your existing liability insurance, meaning that, if a claim is filed against a policyholder, the primary policy must have a claim filed for the entirety of the policy payout before umbrella insurance can be used. This begs the question as to why additional coverage shouldn’t just be purchased against the primary policy, for the sake of convenience. The answer is cost. Because an umbrella policy enjoys a secondary claim position, it is often made available at rates much lower than those found in a primary liability policy.

When Do You Need Umbrella Insurance

The decision to purchase umbrella insurance can incorporate many factors, some of which are subjective in nature. A common rule of thumb is that when the total value of all of your net worth and financial assets is in excess of the coverage afforded by your liability policies, umbrella insurance should be considered. The idea being that, in the event of a catastrophic accident, your assets are protected during a lawsuit. The final decision to purchase umbrella insurance however, is likely personal peace of mind. Policyholders have insurance so that they need not worry about the worst happening, and an umbrella policy would provide an extra layer to that security. The best way to shop for umbrella policies is through an insurance company that can help you make the right decisions.

To assess your umbrella insurance coverage and ensure you are protected, contact us at 772-287-3625

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