When you purchase homeowners insurance or auto insurance, you usually get the basics covered up to a certain amount. However, there are times when you might get into a liability issue that is above your basic coverage and you don’t have the means to cover it on your own. This is where umbrella insurance can be a financial lifesaver.
Umbrella insurance is a liability insurance that you can add on to your current liability coverage on your homeowners insurance or auto insurance policy. Although 85 percent of umbrella insurance claims are related to car accidents, the policies offer protection against accidents that occur at your home, too Basically, umbrella insurance provides coverage for damages to property, personal liability cases, certain lawsuits, and injuries.
An umbrella policy provides an additional layer of insurance, typically $1 million or $2 million, above your auto insurance and your home insurance liability coverage
To further understand what umbrella insurance covers, below are details of some coverages you’ll get under this add-on:
Bodily Injury Liability – As an add-on to homeowners insurance or auto insurance, this would cover any medical costs or liability claims for damages to another person’s body. Claims could arise from auto accidents where you are at fault or having a guest on your property that accidentally trips and falls down the stairs – you can be sued for more than just what you have in the bank.
Your retirement funds, investments, savings and even your future earnings are at risk if a judge allows your wages garnished to pay off a settlement. In some states, the equity in your home can be part of the judgment and you would be forced to sell your home to pay someone who sues you.
Property Damage Liability – This will cover any costs that come with damaging or losing another person’s personal property. With auto insurance umbrella coverage, vehicle damage in an accident that you were at fault for is covered. With homeowners insurance, it can cover your dog’s damage done to a guest’s expensive guitar.
Renter’s liability claims – This covers landlords who rent out their units to other people. As a landlord, you may be exposed to liability claims.
Lawsuit coverage – Umbrella insurance also covers you in multiple lawsuits, should you be served for slander, libel, false arrest, detention, or imprisonment, malicious prosecution, shock/mental anguish, and other personal liability situations.
There’s also coverage for incidents you may not have even considered, such as accidents while you’re on vacation and have rented a Jet Ski or motorcycle or while you’re driving in another country.
As an example of why umbrella insurance is a good investment, consider the following scenario: You’re involved in an accident with a Porsche, causing injury to two people. The medical costs and car repair costs are over $500,000. Your basic auto insurance policy only covers up to $250,000 of accidental damage and injury costs. Without the umbrella insurance, you are responsible for paying the remaining $250,000+ of costs.
Weigh this against the average yearly cost of $200 for a $1 million policy — which is a good deal for the additional coverage that will give you a greater sense of security.
Talk to your insurance agent and see if umbrella insurance can be added onto your homeowners insurance or auto insurance policy.
Do you have umbrella insurance ? Feel free to share your thoughts in the comment section below.