Umbrella Insurance: How it Works? What Does It Cover?

0
642
Umbrella Insurance: How it Works? What Does It Cover?

Umbrella Insurance steps in when your current liability insurance’s limit finishes. However, it is not very probable to find yourself in a situation where your current liability insurance limit will not support you. But a thing about bad news is that it comes unannounced. You have to be pre-prepared and ready when it comes. And that is precisely what umbrella insurance policy will help you do!

Whatever be your existing policy, renter’s, homeowners’, auto, or boat, umbrella insurance policy can cover you. So, what exactly is it?

 

 

What Is Umbrella Insurance?

Consider a scenario where you are driving on an expressway. God forbid, but if you crash into a car and that crash results in a 10-car accident, and they sue you, most probably your existing auto liability insurance will not be able to cover all the expenses. And this is precisely where umbrella insurance picks up. It will pay the rest of the amount you are liable for.

Also read: What Happens If I Need To Buy More Insurance Later?

It is very affordable security for you. You cannot predict such accidents, but they can potentially make you go broke when they do happen. But with an umbrella policy, you can rest assured that whatever happens, you are covered. Your life will continue to stay as it was before the accident.

Furthermore, an umbrella policy has extra benefits as well! It can also cover libel, slander, and false imprisonment. Your liability policies do not cover these scenarios. So, you are in for an added advantage here.

 

 

How Does Umbrella Insurance Work?

We have already discussed where this insurance can help. But there is more to this insurance. Below are a few examples that explain how it works:

 

Scenario 1:

Suppose your teenager, who is not a great driver, crashes into someone and is not only liable for medical bills but the hurt person’s car repair. The person hurt also files a lawsuit. The sum of all expenses goes well above your auto insurance limit. Then enters the hero, umbrella insurance.

Also read: Here Are 8 Insurance Tips For Homeowners!

So, what is the learning? Well, an umbrella policy not only covers you but your family too. As it was your teenager driving the car, not you. But the policy still covers the accident.

 

Scenario 2:

You are at somebody else’s place. There you bumped into someone near the stairs, and that person falls rolling down the stairs. Again, umbrella insurance will cover you.

The learning? Though it is an extension of your homeowners’ or auto insurance policy, it does not need your house or car to be involved. The policy will cover you nonetheless.

 

Scenario 3:

You are on a cross-country road trip. Say, if you are in Canada and crash your vehicle into somebody else’s, you will be covered.

Why? Because this insurance covers you in foreign countries as well. But an exception here is the vehicles you own under other country’s laws.

 

 

An Illustration Of How Umbrella Insurance Works?

Suppose you possess a homeowners’ insurance policy with a $300,000 limit. But a lawsuit filed against you has awarded a $1,000,000 judgment to the person hurt.

This judgment is $700,000 more than what your homeowners’ policy can cover. Now there can be two situations, either you pay this hefty amount from your retirement savings and work ten additional years, or you already have an umbrella policy, and it covers all your expenses.

You see how convenient and peaceful life can be with this policy. So, you might be curious about how would it work in this situation?

The umbrella policy will pay the $1,000,000 judgment, and you do not need to break the bank. The insurance will also cover the attorney fee, which is in addition to the $1,000,000.

You must be thinking, what about the deductible? In this case, you do not have to pay the deductible. Because, say, if you have a $7,000 deductible, then you have already paid it with your homeowners’ policy. That is, your homeowners’ insurance policy will pay $293,000 for the judgment. Since the deductible is paid once, you do not need to pay it again with the umbrella insurance policy.

However, suppose you are using your umbrella policy for a situation in which you do not have a separate liability policy like boat, homeowners’, auto, etc. In that case, you need to pay the deductible, also called self-insured retention. After which, your umbrella policy can take on the situation.

 

 

What Does Umbrella Insurance Cover?

The best thing about it is that it provides very extensive coverage. Yes, it covers almost every liability situation you are in. And this aspect is what differentiates this insurance from every other.

Other policies mention perils that they cover in the policy papers. But umbrella insurance mentions certain situations it will NOT cover. It covers everything else. Interesting, isn’t it?

Below are a few such conditions where your insurance will not cover you:

 

#1: Damage To Your Property

This one is quite obvious. Umbrella insurance is a liability policy. So, it will not cover you when your property is damaged, or you are injured. Only your homeowners’, auto, boat, etc., policies can protect you in such situations.

 

#2: If You Have Caused Damage Intentionally

No policy will cover you if you cause damage intentionally- nor umbrella neither any other liability coverage.

 

#3: Any liability You Agree To Assume In A Contract.

If you have signed a contract that says you agree to assume specific liability, no policy will cover such liability.

 

#4: Liability Associated To Your Business Activities

For such liabilities, you need to have business liability insurance.

 

#5: Liability Caused Due To War Or Armed Conflicts

This is another scenario where no policy can help you. War and armed conflicts cause massive devastation that is outside the scope of insurance companies. And hence they do not cover war and armed conflicts.

 

 

Last Words…

Umbrella insurance is a great deal considering the cover it gives in such affordable premiums. However, you might never need it in your lifetime. But if bad luck does strike you, you will be ready to face it. And its extensive coverage makes the deal even more lucrative.

So, this was all. We hope you found the information helpful. And if you have any doubts, questions, and suggestions, please drop them in the comment sections. We are all ears and reply ASAP!