What is Umbrella Insurance?
Umbrella insurance is liability insurance that provides extra security over and above the policy limits of one's primary auto, home or watercraft coverage. It also covers claims that might be excluded from liability policies. It is sometimes referred to as excess coverage but should not be confused with excess coverage.
Who is it for?
If a person owns a home, business or has other significant assets to protect or is at a higher risk of being sued, it can cover the insured, their spouse and family members and protect them from catastrophic risk. People with significant assets should maintain an umbrella policy in an amount at least equal to their total assets. As total assets increase, umbrella coverage should increase.
How it works:
How umbrella coverage works is best shown by example. John Q. Public is driving a car with policy limits of $300,000 per person and $500,000 per occurrence. He is involved in an accident and liable for $500,000 in damages to the driver of the other car. His primary coverage of $300,000 per personn is paid leaving him with exposure of his assets to the additional $200,000, but he maintains $1 million of umberalla coverage. When that primary policy was exhausted, the umbrella coverage was triggered, covering the additional $200,000 over his policy limit. His personal assets remained protected and untouched.
Types of Umbrella Insurance:
One's umbrella coverage often covers claims that are excluded under other policies that you might not foresee such as false arrest, libel, slander, invasion of privacy, landlord/tenant liability and pollution. Legal defense costs on these claims are also covered.
The major beneift of umbrella coverage is protection of assets. Cost of coverage is relatively inexpensive as risk for the insurer is less. Umbrella coverage limits are usually $1 million to $5 million but some insurers cover up to $10 million. Convenience is also a factor. Like most people, your auto and home insurance are probably with the same insurer. An umbrella policy can be bundled in with those coverages in one sitting.