Umbrella Insurance: What It Is & What It Covers?

What Is Umbrella Insurance?

It’s a top priority to protect your family and properties, which is why people have insurance. Personal umbrella insurance is a form of insurance intended to include, over and above all insurance plans, additional liability coverage, such as auto or homeowner insurance.

What is protected by a personal umbrella insurance policy?

A personal umbrella policy is intended to help shield you against significant and potentially catastrophic liability lawsuits or decisions, often referred to as umbrella insurance. When the underlying liability limits (such as from a homeowners or auto insurance policy) have been met, personal umbrella coverage comes into play.

What does an Umbrella Insurance Policy usually cover?

  • Bodily injury
  • Personal injury
  • Property damage
  • Landlord liability

What is an Umbrella Insurance Policy Typically Not Covered?

  • Personal belongings
  • Business losses
  • Intentional or criminal acts or omission
  • Written or oral contracts

Who Needs Umbrella Insurance?

Almost everyone will benefit from Umbrella insurance. That’s because everyone can encounter injuries that result in high costs. If you’re held liable, an umbrella insurance policy will help protect you from paying out of pocket for the medical or legal expenses of another person. Suppose you are held responsible, for example, when a visitor is injured while swimming in your pool or playing in your yard. Or, suppose you are found to be responsible for a car accident that injures another person. In cases like this, an umbrella insurance policy will help cover the subsequent costs, up to the limit of your policy.

Other members of your family, such as your parents, children and other relatives who live in your home and who do not have auto or property insurance on their own behalf, are often usually covered by umbrella insurance. So, your umbrella insurance policy could also help cover them if your spouse causes a car accident or your teen is sued for making a libelous message online.

Your agent will answer questions about who may and may not be protected by your policy.

Personal Umbrella Insurance Policy In Action

Here is an example of how a personal umbrella policy works: If you are at fault in a car accident that affects another driver, the other driver may be protected by your standard auto insurance up to the limit you chose, say $250,000. But, what happens if that cap is not enough to cover the subsequent medical bills of the other driver?

If the other driver’s injuries are serious, beyond the $250,000 your auto insurance policy covers, you might be legally liable for damages. And your personal properties could be at stake if he sues you. Imagine if a surgeon or another highly paying specialist was the wounded driver. What if the accident you caused resulted in an injury that for six months prevented him from doing his job? All of a sudden, he’s suing you for $1 million to cover his six months off work.

The liability coverage of your auto policy may pay up to $250,000, but where will you come up with the $750,000 remaining? When the regular insurance policy is not enough, a personal umbrella policy will help offset the extra costs. The extra coverage you need may be offered by an umbrella policy so that you don’t get caught trying to pay yourself for the remaining balance. Your bank account, home and other personal property could be covered by this extra policy.

For the most part, personal umbrella plans are available in increments of millions of dollars, from $1 million to $5 million. Whilst an umbrella policy is not needed, in the unfortunate event of an accident, it should provide enhanced protection.

Overall, what is not protected by an umbrella policy?

Your personal property

Although private umbrella insurance is intended to help cover damages if you are held liable for damage to the property of someone else, if you cause damage to your own property, the policy would usually not apply. Suppose your bathtub overflows, damaging your home’s drywall. It would exempt your own compensation from coverage. But if the overflow damages your downstairs neighbor’s house, your personal umbrella policy will cover the damage caused by your negligence, keeping you from paying for the loss out of pocket. It is important to remember, however, that only after the underlying policy limits have been exhausted can any umbrella insurance benefits kick in.

Business losses

In general, damages related to your company’s operation or harm to your business property will not be protected by a personal umbrella scheme. Even if the organization is home-based, the exclusion applies. For instance, if you make money from your home providing day care, any liabilities arising from that arrangement will probably not be covered.

Usually, personal umbrella insurance does not cover other business-related risks, such as a malpractice claim, or damages related to your paying role as an officer or member of a for-profit organization’s governing board.

Criminal or intentional actions

Usually, a personal umbrella policy would not shield you from the effects of your own deliberately harmful or unlawful acts. For example, if you are accused of a crime or harm that you wanted to inflict by your conduct, you owe restitution.

Contracts

Usually, personal umbrella insurance would not shield you from any responsibility occurring in connection with an oral or written arrangement you have entered into. So, for example, if you find yourself facing a lawsuit from someone you’ve hired to work at your house, your umbrella insurance is unlikely to offer cover.

Is Umbrella Insurance The Same As Excess Insurance For Liability?

Umbrella insurance is often referred to as excess liability cover, although there are two forms of insurance that are actually distinct.

Not all insurers provide compensation for excess liability. These plans only offer protections for the same risks and come with the same exclusions as your underlying policy. For instance, if you have excess liability coverage on your homeowners insurance policy, if you are held responsible for the injury of a guest at your home, you would possibly have extra protection. You will certainly not have coverage for a libel or slander settlement, though, because defamation is not a risk covered by standard liability insurance for homeowners.

Meanwhile, for circumstances protected by the underlying policy, a personal umbrella policy usually offers greater coverage of liability, as well as insurance for other risks. For instance, umbrella insurance will help pay against you for a libel or defamation verdict, while a regular liability policy for homeowners, even though you have excess liability coverage, probably would not.

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