You may have heard about the term ‘umbrella insurance’ but have no idea how umbrella insurance works. While this may seem one of the most unnecessary types of coverages, it is often underestimated. So what can umbrella insurance do for you, and how do you go about it?
Keep reading to learn more about how umbrella insurance works.
How Umbrella Insurance Works
Umbrella insurance kicks in once you use your “base” liability limitations. Here is an example:
A car collision that results in multiple victims suffering from serious injuries is your fault. Their combined medical costs are $800,000, more than the $500,000 liability auto insurance policy cap. Your umbrella insurance will cover the remaining $300,000.
To further illustrate this, let’s assume that one of the injured parties is a highly paid professional. Such a person would eventually miss six months of work due to his injury. Your savings and other assets, including your home, could be on the line if you don’t have umbrella insurance. Don’t forget – your car insurance’s liability limits have been reached.
Another advantage of umbrella insurance is that it frequently provides coverage completely excluded from typical homeowner or auto policies. Consider additional coverage against:
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Libel, slander, or defamation
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False incarceration, false arrest, or false custody
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illegal eviction or entry
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invasion of privacy
Umbrella Insurance Limits
Even umbrella insurance has areas it doesn’t cover. Umbrella insurance does not cover your injuries or property damage which other policies should. For instance, your health insurance frequently covers the medical expenses related to accidents. Also, your homeowner insurance safeguards your house from problems like fire or theft.
Other losses typically not covered by umbrella insurance include:
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Damage to your personal property.
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Failure of businesses
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Criminal acts
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Verbal or written agreements
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Purposeful injury or wrongdoing
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Injury due to nuclear radiation, war, or terrorist acts
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A contagious illness
