What is an umbrella policy?

Umbrella insurance is a type of personal liability insurance that is used when you find yourself liable for a claim larger than your homeowner's or auto insurance will cover.  It may even cover other liability claims that your current policy may not, such as libel, slander, and false imprisonment.  Umbrella insurance covers the policy holder and all other household residents. The umbrella policy will set on top of the your primary auto or home policy in the event of a liability loss that exceeds the underlying policy limits. 

 

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Do I need an umbrella policy?

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Umbrella insurance is a small price to pay for the extra peace of mind.  In todays lawsuit happy world,  no one is truly safe and almost anyone would benefit from having an umbrella policy if they found themselves in a lawsuit. In general, if your assets, including all checking and savings accounts, investments, retirement, college savings, and home equity is greater than the limits of your auto or homeowner insurance policy, then you should absolutely consider having a personal umbrella policy.  You should also consider an umbrella policy if you engage in activities that put you at a higher risk, such as owning property, renting out owned property, host large parties, or are a well-known public figure.  Or perhaps you have children who are now teenage drivers, own a dog, or own a home with a swimming pool. 

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How does umbrella insurance work?

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Let's say you are at fault in an auto accident that severely injures another driver. Your auto insurance only covers $250,000.  He is now suing you for $750,000 due to him not being able to work for six months.  Without umbrella insurance, your auto insurance company would pay the first $250,000 and you are on the hook for the additional $500,000.  With a $1,000,000 personal umbrella policy, the umbrella picks up the additional $500,000.