What is an umbrella policy?
Claims that can’t be covered by your existing auto or home insurance can be covered by an umbrella policy. Umbrella policies give you an extra layer of financial protection.
Without an umbrella policy you run the risk of paying claims out of your own pocket, but with umbrella insurance the umbrella policy will help pay off the unexpected costs.
How does an umbrella policy work?
Imagine this – you are out driving with two of your friends and you accidentally run a stop sign and broadside a car. While everyone is alive, one of your friends has a broken arm, the other car is pretty damaged and your car is totaled.
Luckily you have auto insurance! All the damages (after hospital bills, auto repairs and the court filing against you for running the stop sign) the total cost in claims from the accident is comes to $450,000. Your auto insurance policy covers up to $300,000 in claims. How will you cover the remaining $150,000 in damages?
If you had purchased an umbrella policy, this is when it will come into play.
Umbrellas provide protection
Rightfully named, an umbrella policy provides an extra layer or protection and goes above and beyond what your auto or home insurance can cover.
Umbrella policies can offer coverage from 1-5 million dollars. So, similar to the example above, if you have an umbrella policy for 1 million dollars in coverage, your auto insurance will cover the limit of $300,000 and the umbrella policy will cover the remaining bill of $150,000.
Do you need an umbrella policy? Take these factors into account to help you decide:
- Do you have significantly valuable assets?
- Do you have any risks as a homeowner or a renter?
- Do you have a long commute to work?
- Do you participate in any potentially dangerous activities or hobbies?
Are umbrella policies expensive?
Umbrella policies can cost from $150 to $300 for 1 million dollars in coverage. In order to purchase an umbrella policy, you need to be carrying the highest limit in both your home and auto insurance. You cannot pay the lowest premium for auto or homeowners insurance and then add on an umbrella policy.
Using your umbrella in a rain storm
Just like using an umbrella to protect yourself from rain in a storm, an umbrella policy protects you when your home or auto insurance policies have met their limits. While it’s a policy everyone hopes to never have to use, it’s a policy that can make or break your bank when an unexpected accident comes along.
Talk to your insurance agent to find the right umbrella policy for your budget and lifestyle.
