Umbrella Insurance is also known as extra liability insurance. Umbrella Insurance can come in handy when you find yourself liable for a claim larger than your home insurance or what your auto insurance will cover. Umbrella insurance covers miscellaneous unforeseen losses, damages, and legal suits.
WHAT DOES A PERSONAL UMBRELLA INSURANCE POLICY COVER?
A personal umbrella policy, often also called umbrella insurance, is to protect an individual from huge liability claims or judgments. Personal umbrella coverage comes to help when your underlying liability limits (from your homeowners or auto insurance policy) are reached.
Do You Need Umbrella Insurance?
As a general rule, it is said that one should purchase umbrella insurance only if the total value of your assets, including ordinary bank accounts/ savings accounts, retirement and college savings, home equity, and investment accounts, is more than the limits of your auto or home owner's liability. The main premise being, one has to have enough liability insurance to fully cover their assets so that you don’t lose them in a lawsuit.
How does Umbrella Insurance work?
Let’s say your homeowner’s insurance has a personal liability limit of $200,000. Let’s say a mailman walks to your entrance to drop off a package and he slips and falls on your icy front steps. He gets a concussion and some steep medical bills and then decides to sue you. In court, the jury sides with the mailman and awards him a judgment of $1 million. This judgment is $800,000 higher than your homeowner’s insurance liability limit.
Without a personal liability umbrella, you will have to pay that $800,000 out of your pocket. The money would have had to come out of your retirement account. The loss could be devastating and you may have to drastically cut back your expenses to replenish your savings and get back on track to be able to retire.
But if you have $1 million in umbrella insurance, your umbrella policy will be able to cover the portion of the judgment that your homeowner’s insurance doesn’t, without affecting your retirement savings. The umbrella policy will also help you cover any attorney fees and other expenses related to the lawsuit that is not covered under your homeowner’s policy. That is in addition to the $1 million coverage.
For example, if you have a $5,000 deductible on your home insurance, you will pay that amount out of your pocket, and your homeowner’s policy will pay the next $195,000, which gets you to the $200,000 policy limit. Your umbrella insurance does not have a separate deductible in such a case, because the homeowner’s policy covered part of your losses. Your umbrella policy pays the remaining $800,000 of the judgment plus legal expenses, so you’re only out-of-pocket $5,000 for the $1 million judgment.
How Much Does Umbrella Insurance Cost?
Typically, the cost of an umbrella liability policy depends on how much coverage you purchase, the state where you live (insurance rates vary by state) and the risk for the insurance company.
Umbrella insurance is quite reasonable compared to other types of insurance, especially considering the kind of coverage it provides. The Insurance Information Institute says most $1 million policies cost $150 to $300 per year. Typically, one can expect to pay around $75 more each year for $2 million in coverage, and additional $50 per year for every extra $1 million in coverage beyond that. Most insurance companies’ umbrella liability policies start at $1 million in coverage, with higher limits available.
Conclusion
Even if one is the most careful person with the best of intentions he/she can end up on the hook for a huge judgment from a personal liability lawsuit. While it may be unlikely to find yourself in this situation, it’s still a smart thing to be proactive and protect yourself against such a devastating financial loss. Umbrella insurance can help you do that.
Let EZ Online Services help you choose a policy that will fit your needs. Protecting all your assets, whether business, personal or both, is our primary goal. An insurance policy chosen by an expert can lessen the impact of some of life’s most common, yet unforeseen accidents.
