You might have heard of an umbrella insurance policy... or not. Well now you have anyway.
I'm here to clear up some confusion on what an umbrella policy is and what it covers. Not only that, but I'm here to help you answer the question, "Would an umbrella policy even benefit me?"
First of all, what is an umbrella policy anyway? Umbrella policies are created to help close the gaps that may exist in your current policies ranging from your homeowners and auto policies, to your boat and motorcycle policies. Every policy has liability limits associated with it. Your liability limits dictate how much your insurance pays in case you are found at-fault for someone's injuries or for any property damage. For example, in your auto policy, your bodily injury limits and property damage limits are your liability limits. If you caused an accident and were found at fault, if your bodily injury limits read 100/300, your insurance company will pay up to $100,000 per person you injure with a limit of $300,000 per accident and your insurance company will only pay up to the property damage limits on your policy.
What happens if your limits are exhausted?
Well, if you DON'T have an umbrella policy, you are responsible for paying the difference. This could mean a loss of any savings you've accumulated, any home equity you've obtained, or loss of future wages through wage garnishment.
If you DO have an umbrella policy on the other hand, your insurance company will cover any excess liability up to the limits on your umbrella policy. For example, if you are found at fault for an auto accident and you cause $300,000 of injury to one person, but your limits are $250,000/$500,000 and your umbrella policy as $1,000,000 of excess liability coverage, your insurance company will pay for the difference of $50,000 that you are responsible for.
Not only does your umbrella coverage cover excess liability, but your umbrella policy will also cover personal injury liability claims which is something that is generally not covered under your homeowners insurance. An example of a personal injury claim would be if you were to post negative information regarding someone online that proved to be inaccurate and you were sued for defamation, regardless of whether or not you believed it to be true. Your umbrella policy can help cover litigation costs and help pay back any due funds in the case of you being found guilty. Your umbrella policy will also have limits for the amount your insurance company will pay for these claims.
If you're wondering if an umbrella policy can benefit you, ask yourself: Am I willing to pay cover the costs if my insurance limits are exhausted and let my insurance company off the hook for the rest?
If you answer no to that question, it might be time to look into an umbrella policy.