You have a nice home, two cars and steady jobs. Life is good. That’s why you may need umbrella insurance. For most families, it’s an essential level of insurance that goes beyond what your home and auto policies cover. An umbrella policy can provide an additional layer of protection, giving you broader coverage if you’re sued and peace of mind knowing you’re protected.
Whether it’s auto, home, motorcycle, boat or other kinds of policies, all liability insurance has maximum limits. These limits are determined by how much coverage you are willing to pay for, though in all cases insurance companies have a liability ceiling. But what happens if you ever need to go over your limit or break that liability ceiling? That’s where umbrella insurance comes in.
Umbrella insurance is liability coverage above and beyond your existing liability coverage on your auto, home, motorcycle, boat or other types of insurance. Basically, what it amounts to is a single overarching (hence the “umbrella” name as it covers you in a broad sense) policy that takes affect as soon as your liability coverage from any of your underlying insurance policies (such as home insurance) is maxed out.
There are many ways that your underlying liability coverage could be maxed out, but in most cases, it will usually involve gross negligence on the part of someone on your policy, which then either results in extreme medical bills and/or a lawsuit. The gross negligence could involve an auto or boating accident, an unsafe part of your home or property that results in an injury or death (including swimming pools), or something similar.
So let’s consider an example in which you have maximum liability coverage of $250,000 on your auto insurance policy. If someone on your policy commits an act of gross negligence (though not criminal – criminal activity is never covered) and seriously injures someone, causing damages in excess of your $250,000 liability – let’s say to $450,000, so $200,000 over your max coverage – then your umbrella policy would kick in and cover you for that additional $200,000. This may include legal fees, medical bills and other hardships suffered by the injured party.