Umbrella Insurance Policy Basics
When people go shopping for insurance, umbrella policies are not normally at the top of their list. This is primarily because you are not ‘required’ to have one, as you are with auto, home, and soon to be health insurance. Other reasons people often shy away from umbrella insurance are they do not fully understand what it means and what it covers.
An umbrella policy is called as such because it provides an extra shield of protection from all forms of liability that would not be covered under your regular insurance policies, such as your auto and home. Now some people often misunderstand this to be a supplemental policy; that is, a policy that pays for deductibles and/or co-pays from your other insurance. This is not the case.
Instead, an umbrella policy simply adds an extra layer of protection beyond what your standard policies will cover. Let’s say, for example, you have a home and two automobiles. The liability portions of your autos are insured at $250,000 per person, and $500,000 per accident. In addition, the liability portion of your homeowner’s policy is also $500,000. Then let’s say you purchase an umbrella policy for $1 million.
In this scenario, if you have an at-fault auto accident and you are sued for $1.5 million, your auto policy will only pay out up to $500,000. Without the umbrella policy, the additional $1 million you are being sued for would have to be taken out of your hard-earned assets. However, because you bought the additional $1 million in protection, you would be fully covered in this instance.
Another important point about umbrella policies is that the coverage extends beyond just your auto and home to include personal liability claims against you. For example, if you were playing golf and accidently hit someone with the golf cart, the only liability protection you would have would be your umbrella policy.
A common misconception people often have about umbrella policies is that they must be expensive if they offer that level of coverage. In fact, they are among the least expensive policies available. Depending on where you live and what level of coverage you want, umbrella insurance can usually be obtained just a few hundred dollars a year.