How To Choose Umbrella Insurance Coverage

Car accidents and umbrella coverage

Umbrella insurance is a type of insurance that provides protection above and beyond what other insurance policies offer. This is important for people who have substantial assets, savings, or high incomes. For example, if you get sued, umbrella insurance can help you avoid out-of-pocket losses — even if the claim is a very expensive one.

What Does Umbrella Insurance Cover?

Major liability claims are made against you.

As an illustration, your policy will protect you if:

  • You hurt or kill someone in a car accident
  • Someone gets hurt or killed on your property
  • You do serious damage to someone else’s property or
  • You are sued for slander or libel

You’ll likely have other coverage that also protects you from financial responsibility in these circumstances. There are times that you will look to your homeowner’s insurance policy. For example, if someone is hurt or killed on your property.  This will pay for both claims made against you and any legal defense costs you might incur. You likely have auto insurance to cover you if you cause an accident.

Umbrella insurance covers you for damages that might exceed the amounts afforded by those standard policies. Therefore, if coverage under your other insurance policies runs out because you hit your limit, your umbrella liability policy kicks in to pay for other costs. Consequently, you might have to cover items out of pocket. This would include:

  • Legal defense fees
  • Settlements or financial judgments entered against you

That’s where umbrella insurance gets its name. It is because it acts as an umbrella. This is above all of your other coverage. And it covers you against a broad range of big losses.

Who Needs Umbrella Insurance?

Some example scenarios

You might want to consider purchasing umbrella insurance if:

  • You have substantial assets. When someone is severely injured or killed, the victim (or their family,) in many cases, settles for the policy limits on your car or homeowner’s insurance. However, if you own significant property, victims have much less incentive to settle the claim within policy limits. They may try to pursue a larger settlement because they know you have the personal wealth to pay it.
  • You have a high income. The same issue applies if you have a high income. Therefore, people may be more aggressive in suing you. This is because they know they can garnish your wages to collect money beyond what your standard insurance policy pays out.
  • You have a higher risk of being sued.  For example, you could be at a higher risk of someone being hurt on your property if you have a trampoline or swimming pool. Thus, buying an umbrella policy makes more sense.

How Does Umbrella Insurance Work?

Case Example

Let’s say you cause a car accident resulting in property damages and injuries. Your auto insurance policy may provide you with $100,000 in coverage per person injured, $100,000 in property damage coverage, and $300,000 in bodily injury coverage per accident.

As an example, let’s say you hit and killed a family of three traveling in a Mercedes or Rolls Royce. Not only would you have caused property damage likely exceeding your coverage limits. It is likely that chances are good you’ll face a wrongful death lawsuit.

This is where your umbrella insurance policy kicks in. First, your auto insurer would cover the first $100,000 in property damage and $300,000 in personal injury liability. Second, your umbrella insurer would pay any remaining damages up to your coverage limits.

You could end up personally owing hundreds of thousands of dollars, plus attorney’s fees. You would be personally responsible if you did not have umbrella insurance. See the full article here: How to Choose an Umbrella Insurance Policy?