Umbrella Insurance

How Umbrella Insurance Works.

Umbrella insurance is a type of liability coverage that’s mainly designed for people whose combined assets add up to more than their auto and home liability insurance covers.

Basically, it makes sure that, in the event you’re liable for damage or injury that exceeds your standard home or auto liability coverage limits, your assets, like your home or savings, won’t be at risk.

If you have umbrella insurance, it can kick in for the remaining costs once your standard liability coverage is exhausted. That way you don’t end up losing your assets in an expensive lawsuit.

Chances are slim that you will lose a lawsuit for a sum greater than what your existing insurance will pay—but if you ever did find yourself in that situation, you could lose all your savings. Umbrella insurance is designed to make sure you never find yourself living that nightmare.

• Umbrella insurance is a type of personal liability insurance that covers claims in excess of regular homeowners, auto, or watercraft policy coverage
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• Umbrella insurance covers not just the policyholder, but also other members of their family or household.
• Umbrella insurance coverage covers injury to others or damage to their possessions; it doesn't protect the policyholder's property.
• Umbrella insurance is quite cheap compared to other types of insurance
.

Umbrella insurance is a type of personal liability insurance that can be indispensable when you find yourself liable for a claim larger than your homeowner's insurance or auto insurance will cover. If you own a boat, umbrella insurance will also pick up where your watercraft's liability insurance leaves off.

Umbrella insurance even covers certain liability claims those policies may not, such as libel, slander, and false imprisonment. And if you own rental property, umbrella insurance provides liability coverage beyond what your renter's policy covers.

How Does an Umbrella Policy Work?

Here are some examples of incidents an umbrella policy could cover if your homeowner's insurance or auto insurance wasn’t enough:

Your dog runs out of the house and viciously attacks a neighbor who was going for a walk. Your neighbor sues you to cover her medical bills, lost wages, and pain and suffering.

Your daughter gets into a fight at school and punches another girl, breaking her nose. The girl’s parents sue you.

You cause a 10-car accident and your auto insurance property damage coverage isn’t high enough to replace all 10 accident victims' vehicles. Nor is your personal liability coverage high enough to pay for their medical bills.

You send sandwiches to your son’s school for a field trip lunch. Several students develop food poisoning and their parents sue you.

Your teenager throws a party at your house while you’re out of town. Someone brings alcohol to the party, and one of the guests is arrested for driving under the influence on the way home. You are sued.

Umbrella policies also cover malicious prosecution, wrongful entry, invasion of privacy, and other hazards.

As you might have gleaned from these examples, umbrella insurance covers not just the policyholder, but also other members of their family or household.

So if your teenager isn’t the best driver, you can sleep better at night knowing your umbrella policy will cover the injured parties’ medical bills if your kid is found liable for a major accident.

That being said, make sure you understand how your policy defines a household member so you’ll actually have the coverage you need.

You might have also noticed that, even though umbrella insurance acts as coverage above and beyond your homeowners and auto insurance, the incident doesn’t have to involve your property or your vehicle for your umbrella insurance to cover it.

You’re also covered worldwide, with the exception of homes and cars you own under other countries’ laws.

Example of How Umbrella Insurance Works

• Let’s say your homeowner's insurance has a personal liability limit of $300,000. You throw a large holiday party, and one of your guests slips and falls on your icy front steps. She ends up with a concussion and some astronomical medical bills and decides to sue you.

  In court, the jury sides with your party guest and awards her a judgment of $1 million. This judgment is $700,000 higher than your homeowner's insurance liability limit.

• Without a personal liability umbrella, you have to pay that $700,000 out of pocket. The money will have to come out of your retirement account, your main source of savings.

  The loss is devastating and means you’ll have to work 10 additional years, find a higher paying job, or drastically cut back your expenses to replenish your savings and get back on track to be able to retire.

• But if you have $1 million in umbrella insurance, your umbrella policy will cover the portion of the judgment that your homeowner's insurance doesn’t, and your retirement savings will remain intact.

  The umbrella policy will also cover any attorney fees and other expenses related to the lawsuit that weren’t covered by your homeowner's policy. That coverage is in addition to the $1 million.

• So if you have a $5,000 deductible on your homeowner's insurance, you’ll pay that amount out-of-pocket. Then, your homeowner's policy will pay the next $295,000, which gets you to the $300,000 policy limit.

  Your umbrella insurance doesn’t have a separate deductible in this case, because the homeowner's policy covered part of the loss.

  Your umbrella policy pays the remaining $700,000 of the judgment plus legal expenses, so you’re only out-of-pocket $5,000 for the $1 million judgment.

• What if you were found liable in a case where your homeowner's or auto insurance didn’t apply? Then you’d pay an umbrella insurance deductible, called self-insured retention, before the umbrella policy kicked in.

What Doesn't Umbrella Insurance Cover?

One great thing about umbrella policies is that they provide broad coverage. They cover any incident that the policy does not specifically exclude, unlike some insurance policies, which only cover specifically named incidents. But no insurance policy covers everything. Here are some things your umbrella policy likely won’t cover:

Damage to your own property.

Remember, it’s a liability policy, so it will only cover you if you’re held responsible for damage to someone else’s property. Make sure you have enough homeowner's insurance to protect your own property and possessions.

Damage that you or a covered member of your household cause on purpose.

If you deliberately pushed your party guest down the stairs, umbrella insurance wouldn’t cover the costs of the lawsuit or judgment (and neither would your homeowner's insurance).

Liability incurred in business or professional activities.

You’ll need business liability insurance to cover these incidents.

Liability you agreed to assume under a contract you signed.

Liability related to war or armed conflicts.

Good luck finding any type of insurance that covers war-related damage; the financial losses associated with war are too high for insurance companies to cover.

The Bottom Line Be Smart Get it

Even the most careful person with the best intentions can end up on the hook for a huge judgment from a personal liability lawsuit. While you’re unlikely to find yourself in this situation, it’s still smart to protect yourself against such a devastating financial loss. Umbrella insurance can help you do that.

At Angel Family Insurance we are committed to helping you find the right insurance coverage at the best price. We are an independent insurance broker with options for you.

Our experienced, local insurance agents, take the time to assess your individual needs and develop a policy that fits your budget.

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