Whether you’re a business or an individual, you need various types of insurance in place to protect against life’s “what ifs.”
Popular insurance products most people need include life insurance, health insurance, auto insurance, and homeowners.
And businesses need to add a few more layers of protection with coverage for their buildings, their inventory, their employees, and even their income.
One type of insurance coverage offered in addition to all the other types is umbrella insurance.
Like a real umbrella, this type of insurance is intended to cast a wide net over the various risks in your life to protect you once your other insurance policies run out.
What is Umbrella Insurance?
But, how does this coverage work? And what is it anyway?
To put it simply, umbrella insurance is extra liability insurance designed to protect you from lawsuits or major claims that could be costly in financial terms.
Umbrella insurance typically provides coverage over and above the limits on other insurance policies with the goal of providing an excess source of coverage to draw from in the worst-case scenario.
Umbrella insurance can also be relied upon to cover claims that may not be covered under other liabilities policies.
What Does an Umbrella Policy Cover?
It may sound strange to purchase additional insurance coverage that kicks in once your current policies are exhausted, but it can make a lot of sense once you break down what exactly umbrella insurance is used for.
For the most part, umbrella insurance is intended to cover several situations that can be extremely costly under the right circumstances — for example: injuries, damage to property, lawsuits or litigation, and personal liability situations.
Here are some scenarios that fit with each example:
- Injuries: Imagine a neighbor’s child climbs a tree in your backyard and falls to the ground, breaking his neck in the process. If the parents sue you, your umbrella policy could kick in for amounts which aren’t covered under your homeowner’s insurance policy.
- Damage to property: Your child causes considerable damage to pricey antiques in a neighbor’s home. The neighbor sues you for the estimated cost of replacing these antiques, which just so happens to be exorbitant.
- Lawsuits or litigation: A colleague in your industry is unhappy with your critique of their business practices online, so they decide to sue you for libel.
Other situations where an umbrella policy could prove extremely helpful include slander or someone suing you for mental anguish resulting from you or a family member’s actions.
A quality umbrella insurance policy is also essential to protect you from the results of false arrest or imprisonment.
Umbrella Insurance in Action
Consider this example of how an umbrella insurance policy might work in real life:
Imagine you’re driving your own vehicle when you get into an accident that’s entirely your fault.
You have auto insurance in place, so that’s great.
Unfortunately, your insurance only covers the other driver up to the limits of your policy which, in this case, stop at $500,000.
Now imagine the driver is facing severe injuries resulting from the crash.
They need to endure multiple surgeries to fix broken bones, and they must go through therapy and rehabilitation to relearn how to use their limbs.
In the end, they rack up well over $500,000 in medical bills — and this doesn’t even include monies they may be entitled to as reimbursement for pain and suffering or lost work.
Now imagine this individual decides to sue you.
Your auto insurance kicked in to cover the first $500,000 of their medical bills, but what happens now?
This is where a personal umbrella policy would come into play.
An umbrella policy with high enough limits could be utilized to pay for covered expenses.
Without an umbrella policy, on the other hand, your personal assets and future income could be at stake.
Another example of umbrella insurance in action:
Imagine you work as a financial writer who covers the banking industry.
You spend months conducting a study of several banking CEOs only to reach the conclusion that one individual you’ve studied is operating with an unethical business model.
You share the information you’ve learned in an article for a magazine, only to find you’re now being sued for libel.
You’ve done your job and spoken the truth, but the individual feels your words have caused irreparable damage to his reputation.
This is a scenario where an umbrella policy could save you since other types of insurance don’t necessarily apply to personal liability situations such as this one.
Can You Get an Umbrella Insurance Policy for a Business?
While a few of the examples above describe a personal umbrella policy, commercial umbrella policies are also available.
These policies work similarly to personal umbrella insurance policies in the sense that they are intended to kick in after other insurance policies have been exhausted.
Business umbrella insurance policies are also popular for companies that want extra coverage in place in the event they are part of a lawsuit.
These policies help them protect against exorbitant financial losses or the loss of important assets.
What Isn’t Covered with an Umbrella Policy?
Typically, umbrella policies are not intended to cover your personal property.
Other types of insurance are provided to cover your personal belongings and assets, including auto insurance and homeowner’s insurance.
Umbrella policies also fail to protect individuals and businesses in situations where they have committed a fraudulent act or a crime.
If you are being sued because you defrauded someone out of their assets somehow, for example, your umbrella policy will not back you up.
Do You Need Umbrella Insurance?
Before you decide whether to purchase an umbrella insurance policy, it helps to take a holistic look at your finances and your assets.
Chances are good that, if you have considerable wealth, you have more to protect than someone who doesn’t have much to their name.
Still, it’s important to remember that you can be sued for all kinds of reasons — even if you don’t considerable wealth.
For that reason, many experts suggest getting umbrella insurance quotes and purchasing a basic policy no matter your net worth.
Here are a few surefire signs you need an umbrella policy:
- You own and home and drive a car, or your family members drive cars.
- You have kids or teenagers in the home, including young drivers.
- You are perceived as someone who has a lot of money, whether it’s true or not.
- You own items that present an extra level of risk, such as a backyard pool or hot tub, a trampoline for the kids to play on, a snowmobile, or a four-wheeler.
- You worry that the limits on other insurance policies you own are not high enough to protect you from financial losses.
- You have considerable assets to protect.
How to Find the Right Umbrella Insurance Policy
It is easier than ever to shop and compare policies online.
After applying for several umbrella insurance quotes, you can take some time to compare policies as well as costs.
Ideally, you’ll want to look for a high-quality umbrella insurance policy from an insurance company with excellent ratings.
You’ll also want to compare the costs of each policy along with the level of coverage being offered and try to buy the most amount of coverage you can for a price you can afford.
Fortunately, umbrella insurance is usually not very expensive.
The average personal umbrella insurance policy can cost as little as a few hundred dollars per year for up to $1 million in coverage.
Since umbrella insurance kicks in after your other insurance policies are exhausted or in rare personal liability situations, it tends to come with a lower level of risk for insurers, which translates into lower costs for you, the consumer.
If you’re leaning toward picking up an umbrella policy, you shouldn’t delay the purchase.
The sooner you line up umbrella insurance, the sooner you can rest easy and quit worrying about life’s many “what ifs.”
You’ve taken the time to read this article and learn about this important type of insurance coverage, but now is the time to act!
Contact us to get umbrella insurance quotes today and you may be able to buy coverage in less time than you think.