Most commonly, umbrella insurance is something you get in addition to either a car insurance or homeowners insurance policy. Umbrella insurance is specifically about liability, which is the cost you might have to pay to somebody else for an unfortunate event where you are held responsible. It doesn’t usually include losses you bear yourself, such as if your property is damaged or your possessions are stolen.
You’d usually get umbrella insurance when your main insurance policy has liability coverage limits that are too low for your needs. Umbrella insurance will only pay out when your main policy has already paid out in full, and it will only pay out the remainder of your costs.
For example, if your auto policy covers liability up to $500,000 but you cause an accident that leaves the other driver with medical bills of $600,000, your main policy will pay out in full, and the umbrella insurance policy will kick in for the remaining $100,000.
The umbrella insurance policy itself will have its own limit, but this is less likely to be an issue. An umbrella insurance policy can be cheaper than you might think. While it covers large potential payouts, the premium usually reflects the reduced risk that the policy will need to pay out.
Real life example of an Umbrella claim:
Claims data supports that almost 85% of umbrella claims are related to auto accidents, many for small incidents would wouldn’t expect could be so costly.
For example: (this is a real claim but names have been changed)
Fred & Wilma have an auto insurance policy that provides $250,000 in liability coverage.
One day Wilma is driving her SUV, she looks down to adjust the radio (or to check her phone). When she looks up she sees a stop sign ahead but due to icy roads can’t stop in time.
Her SUV hits the passenger side of a car in the intersection. The woman (Wanda) in the passenger seat sustains an injury to her shoulder that will make performing her job difficult or impossible.
Wanda is 28 and just finishing her surgical residency at the local hospital. Fred and Wilma are sued for medical expenses ($250,000) that exceed the limits of Wanda’s no-fault auto policy as well as lost potential future earnings ($1,000,000) from her medical career.
Their insurance company defends them in court, loses the case, and pays the policy limit of $250,000 to Wanda.
Fred and Wilma still owe $1,000,000 to Wanda. They will have to cash in savings, raid their estate, and sell property to come up with the money they owe Wanda due to this accident.
If Fred and Wilma had a $1,000,000 Umbrella policy their insurance company would have continued fighting this claim for them and paid the additional $1,000,000 if they lost.
Umbrella policies can be purchased in limits up to $5,000,000 with many companies and start as low as $150 annually. Talk with us about adding a cost-effective umbrella insurance policy to your account.