It is unlikely that your current auto insurance does not offer you enough protection against lawsuits, but do you want to take this chance? If you were found liable for an accident and forced to pay a huge settlement to the victim, it could wipe out your entire savings and all of your assets. Umbrella insurance was designed to prevent this scenario from occurring.
What Is an Umbrella Policy?
You have auto insurance that protects you against car accidents that you cause, and you have home insurance to protect you if an accident occurs on your property. If you have a boat, you also purchased watercraft insurance in case you are ever liable for an accident on the water. Sometimes, these policies do not offer you enough protection.
The medical bills or the repair bills of third parties may surpass the limits set in your auto, home or watercraft insurance. If this occurs, you would be responsible for paying the difference between the amount your policy pays and the amount that is not covered. An umbrella policy adds extra protection for the amount that you would be responsible for paying.
Another way to think of an umbrella policy is as “asset protection.” That is because an umbrella policy protects your assets after you are determined to be the liable party in an accident.
How Does Umbrella Insurance Benefit You?
Umbrella insurance benefits you by providing coverage against claims and lawsuits against you and your family members in the following situations:
You Cause a Collision with Your Vehicle.
You may have parked very close to a building. In your haste, you may place the vehicle in drive rather than reverse. This leads you to smash into the building. It is an accident, but you are liable for the damages. Your auto insurance would pay for the damages first, but if the limit leaves a balance behind for you to pay, your umbrella insurance policy will pay this amount.
Your Dog Bites a Neighbor.
Your home insurance liability coverage will cover your dog in most cases. However, your neighbor could decide to sue you for much more than your homeowners’ insurance allows. After the homeowners’ insurance policy pays its share, your umbrella insurance policy will take care of the remaining amount.
Someone Sues Your Teenager for Defamation.
This is an increasing possibility because of the proliferation of social media use. Suppose that your teenager posted a libelous comment on Facebook, and the victim decides to sue your teen. An umbrella insurance policy will pay for your teen’s lawyer and defense. If there is a judgment against your teen, the umbrella insurance policy will also pay the award.
Who Is the Umbrella Policy for?
Several people need an umbrella policy, including the following:
Those in the public eye.
You own rental properties.
You have employees who work in your home.
You put on large parties at your home.
You are the trustee of your family’s trust.
You have animals, including dogs, horses and other large animals.
You own a trampoline or a swimming pool or have a pond.
You have children living in your home.
You are on the board of a charity.