Definition of umbrella insurance policy

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What is an umbrella insurance policy?

An umbrella insurance policy is additional liability insurance coverage that goes beyond the limits of the insured’s home, auto or watercraft insurance. It provides an additional layer of security for those who risk being sued for damage to property or injury to others in an accident. It also protects against defamation, vandalism, slander and invasion of privacy.

Key points to remember

  • An umbrella insurance policy is a type of personal liability coverage that goes beyond the amount offered by regular home or auto insurance.
  • To have umbrella insurance, you must first have a standard home, auto, or watercraft insurance policy; the umbrella policy takes effect when regular coverage is exhausted.
  • Applicants for umbrella insurance include people who own considerable property or potentially dangerous things, or who engage in activities that could increase their risk of prosecution.

What is umbrella insurance?

How an umbrella insurance policy works

The additional coverage provided by an umbrella insurance policy is particularly useful for wealthy individuals who own many assets – or very expensive assets – and are at significant risk of being sued. Small businesses also use an umbrella insurance policy to guard against potential pecuniary damage resulting from claims.

The premium for an umbrella insurance policy may be less expensive if the policy is purchased from the same insurer that provided the original auto, home, or watercraft insurance. Depending on the provider, the policyholder who wishes to add an umbrella insurance policy must have basic insurance coverage of $ 150,000 to $ 250,000 for auto insurance and $ 250,000 to $ 300,000 for auto insurance. home insurance.

Umbrella insurance is often referred to as excess liability insurance. If a policyholder is sued for damages that exceed the liability limits of auto insurance, home insurance, or other types of coverage, an umbrella policy helps pay what they owe. In other words, if the original policy’s dollar limit has been exhausted, the umbrella policy acts as a built-in security, so that the insured does not have to dip into savings and others. active.

Umbrella insurance can also provide coverage not included in a basic insurance policy, such as libel, slander, and false imprisonment.

Special considerations

People who buy umbrella insurance on a regular basis will usually own expensive goods or save a lot of money. Or they may have dangerous objects that can cause injury (swimming pools, trampolines, dogs, etc.). They may also engage in activities that increase their chances of prosecution, such as:

  • Being owner
  • Sports coaching for children
  • Sitting on the board of directors of a non-profit association
  • Volunteering
  • Regularly publish product and company reviews
  • Play sports where you could easily hurt others (skiing, surfing, hunting, etc.)

$ 150 to $ 300

The annual cost of a million dollar personal umbrella insurance policy, according to the Insurance Information Institute

Umbrella insurance policy example

To understand how umbrella insurance can help you, consider the following scenario. If a driver turns on a red light and accidentally collides with another car, the vehicle could be seriously damaged and several people could be injured.

With auto repairs totaling $ 50,000 and the treatment of injuries eclipsing $ 500,000, the driver at fault can be held liable for expenses well in excess of their insurance coverage limits. An umbrella insurance policy will cover additional liability costs beyond the limits of auto insurance coverage.


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