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?

In cases when major liability claims are made against you.

Your policy will protect you if:

  • Someone gets hurt or killed on your property;
  • You hurt or kill someone in a car accident;
  • 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. For example, you probably have a homeowner’s insurance policy that will pay for both claims made against you and any legal defense costs you might incur if someone is hurt or killed on your property. 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 costs you might otherwise have to cover out of pocket, including:

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

That’s where umbrella insurance gets its name. It acts as an umbrella, above all your other coverage, and 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. People may be more aggressive in suing you 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. If you have a trampoline or swimming pool, for example, you’re at a higher risk of someone being hurt on your property — so 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.

What if the accident was more than a minor fender bender? What if 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, but 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.

If you were successfully sued for $1 million 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?