Umbrella Insurance

Umbrella Insurance: Everything You Need To Know

What is Umbrella Insurance?

We are doing our best to avoid accidents. But things can happen eventually and lawsuits are very costly. Everything you’ve worked hard can be wiped out in an instant. A lawsuit can come in your way. Without having proper protection. It can force you to tap into your own pocket. Just to cover the difference unless you have an umbrella insurance policy.

Today this article will tell you what you need to know about umbrella insurance. Umbrella is an extra liability coverage in order to protect you. A protection against major or minor accidents. Well, you can think of this as an additional layer of security. Wherein, it picks up where the coverage of your basic insurance policies ends. In simple words, it’s an extra layer of protection on top of the other policies.

There are two types of umbrella insurance. First is the personal umbrella. It applies after the liability limits on the insured’s policies have been used up. Second is the commercial umbrella. Wherein it pays claims after limits on the insured’s liabilities have been depleted.

Actually umbrella serves three main purposes:

  1. Umbrella provides extra limits over the basic coverages.
  2. It also pays for certain types of losses that are not covered by the basic policies.
  3. Provides coverage when an aggregate limit in the basic policy has been depleted due to claims.

Benefits of Umbrella Policy

We all need a safety net. Because even one unexpected incident can put our assets at risk. But with umbrella insurance you get an additional protection. It’s also a protection against unexpected events. 

Umbrella also gives you peace of mind. Especially when you face a major claim or a lawsuit. Let’s have an example, you’re at fault in a car accident. The cost of injuries to others is $750,000. But the bodily injury limit on your policy is $400,000. The umbrella policy will cover the remaining $350,00.

Another great benefit of umbrella policy. It covers some of the perils not included in your basic policy. It can also save you thousands in legal fees. As it covers you from defense costs if there’s a lawsuit.

Umbrella insurance policy also provides protection against car accidents. Even if you are in another country. A million dollar umbrella policy can cost you less than 1 dollar a day. But, it’s not bad for extra security and peace of mind.

Personal Umbrella insurance

Personal umbrella policy can potentially help protect your assets. Such as your savings and even your future earnings. But when does personal umbrella policy come in handy?

Here’s an example for better understanding. Suppose you’re found at fault in a car accident. It results in injuries to another person. Their medical expenses are more than your car liability coverage. Let’s say you post a negative review online. They sue you for alleged defamation. If you’re legally obligated to pay for all the damages. The personal umbrella will help you in these situations. Take note that personal umbrella typically offer at least $1,000,000 in liability.

Another example. Let’s say you involved yourself in an auto accident. Your auto insurance has a limit of $400,000 for bodily injury or property damage. Unfortunately, the other driver sues you and you are guilty. The lawsuit is settled for $1,000,000 and you are liable to pay.

Your auto insurance will pay the first $400,000. But what about the remaining $600,00? Well, thankfully you have a personal umbrella with a 1 million dollar limit. It will pay the remaining $600,000.

Commercial Umbrella Insurance

This policy works by paying claims after the limits on the insured’s liability have been used up. This type of umbrella covers damages that result from claims against your business. It also covers your business against lawsuits.

Let’s have an example to better understand commercial umbrella policy.

Royal Crown is working on a driveway project. A Royal Crown employee is operating an asphalt machine when he accidentally injures two passersby. Both of them sue the Royal Crown for $600,000 each. Royal Crown’s general liability policy pays only 1 million for both claims. Royal Crown’s umbrella policy will pay the remaining $200,000.  An umbrella policy actually covers some risks not covered by underlying policies. 

Take note that the cost of commercial umbrella depends on the limits you choose. The nature of your business. Lastly your claims history.

Should I Buy Umbrella Policy?

Well, first things first, Let’s put it in rental property. Some of you, especially the ones who live in expensive states. Like California or Illinois might think insurance is enough to protect you. Well, let’s see the importance of umbrellas. 

  1. Does an umbrella make sense?

In my personal opinion. Umbrella insurance is great for insurance strategy. This is for everybody even if you don’t own rental property. It’s extremely affordable and it provides an extra layer of protection. Especially, in case of a claim from a lawsuit or an accident that could occur.

But, don’t think that my opinion regarding insurance is bad. Anybody out there might be saying “just buy insurance”. But it’s not a wise move. So, you should look at umbrella policy and make sure it’s a part of your plan.

  1. An excess insurance

Once your regular insurance is used up, that’s the time that umbrella will step in. It doesn’t work like your regular insurance. It also doesn’t cover you in case your insurance doesn’t do it. But it covers you after your regular insurance runs out of its coverage limit.

Some people think umbrella insurance covers everything. Nope, it only steps in for the excess liability. That’s the reason why it’s so cheap.

  1. You need valid insurance first

Your umbrella won’t kick in if you don’t have valid insurance. For example, if you own a homeowners policy. And there’s someone that gets hurt inside your property. If there’s a claim that’s in excess of your coverage limit. That’s when the umbrella kicks in. But if you don’t have valid homeowners it won’t.

If we put this in the context of rental property. You need a landlord policy first before the umbrella starts kicking in. But if you don’t have that landlord policy. Then the umbrella insurance policy could be worthless.

  1. Umbrella Policy for personal use

Sometimes, you just think your rental properties are going to be covered. You should be careful. And make sure to talk to your agent before making that assumption.

Because some umbrella policies won’t cover rental properties. Some do, and some only cover up to three rental properties. So, you are forced to get a commercial umbrella policy. Again it’s good not to make an assumption. Take note your personal umbrella policy is not going to cover everything.

People Who Need An Umbrella Policy

People who have a pool on their property. If you have a pool in your house, you have what’s called an attractive nuisance. Lawyers actually love this kind of stuff. They usually sue people with pools on their property. Because it’s sympathetic. In addition, you’re guaranteed to get a settlement from the insurance company. If someone dies in your backyard. How much do you think about the lawsuit? It’s probably a lot more than the liability policy you possessed. So, if you own a pool, you should consider purchasing umbrella insurance.

If there’s a teenage driver in your home. We all know that teenage drivers are prone to car accidents. They tend to have more severe accidents than normal. So, if you have a teenage driver in your circle. You absolutely need to purchase an umbrella policy.

Lastly, If you have investment property under your name. You absolutely need to have an umbrella policy. It’s because if your tenants do some stupid things. It can haunt you and drag you into their lawsuit.

Take note that both insurance and umbrella policy are important. A balance of both can give you peace of mind and additional security.

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