Life is filled with uncertainties and unforeseen incidents and that’s why you should have an insurance policy in place. But what happens when your current insurance policy isn’t enough to cover the cost of the damages caused?
See this; your years of hard work have paid off and now you own an estate to your name. A problematic neighbor had an unfortunate accident on your properties and refused to settle things amicably. Now, a huge lawsuit stares at you that exceeds what your current homeowner insurance policy can cover. What do you do? With an umbrella insurance policy in place, you can easily navigate and cover the cost of this lawsuit without losing your beloved estate.
What is Umbrella Insurance and What Does it Do?
With the scenario above, you must already have a mental projection of what umbrella insurance does. But what really is this insurance option? Umbrella coverage is an extra layer of insurance coverage that offers protection beyond the limits of the existing insurance policy. It provides coverage for injuries, property damages, lawsuits, and personal liability issues that are not covered by an existing insurance policy.
Many insurance companies place a limit on their coverages, such as automobile and homeowners insurance. Thus, if there’s damage that exceeds the set limit, you have to bear the cost as a property owner. Umbrella insurance can be a cheese in your burger and foot the excess cost.
How Does Umbrella Insurance Work?
This insurance coverage works in two major ways;
- It provides coverage where your vehicle, homeowners, or other types of insurance policies have exhausted their limit.
- It provides coverage for incidents that are not covered by the existing insurance policies, such as false arrest, slander, and liability coverage, among others.
What Does Umbrella Insurance Cover?
Unlike automobile or home insurance which covers specific areas, umbrella insurance coverage extends mainly to certain areas and does not have specificity in the real sense. Rather, it covers a range of scenarios and also extends to your family members. Here are some instances where umbrella insurance can come into play;
● Injury to other people
Dog bites: This injury is often covered in the home insurance policy, but if the damage is above what your current plan can cater for, umbrella insurance can step in and save the day.
Automobile accident: While this is catered for in the auto insurance policy, the bill can skyrocket if you’re liable for multiple victims. In this sense, your insurance coverage might not be enough to cover all but you have an umbrella policy to fall back on.
Physical injury to other people: In cases where you or your family member cause an injury to another person, this insurance plan can save the day if the appropriate insurance coverage isn’t enough.
Damage to other people’s property
Umbrella coverage takes care of damages caused by you or your family member to other people’s properties. Such occurrences include driving into a building or vehicle of another person. This coverage can step in if the cost of repair is higher than your home or automobile insurance packages.
Certain lawsuits
Certain lawsuits covered in this policy include certain lawsuits that are not covered by your insurance plan. Such lawsuits may arise from your workplace, associations, and the conduct of your family members, a typical example of your teenage child in their rebellious phase, among others.
This insurance policy also provides coverage for illegal arrest or imprisonment, libel, and slanders, among others.
What is Not Covered by Umbrella Insurance?
Although umbrella insurance provides a wide range of coverage, there are some exceptions, just like any other insurance plan. Generally, umbrella coverage only caters to damages caused by your or your family members to another person, it doesn’t include damages suffered by you. Check out these instances where your umbrella plan might not be able to cover you from the rain;
Business Losses: You invested in a high-end business with great potential. But then the risky nature of business kicks into play and you suffer a hefty loss. This plan will not be able to cover for you in this case.
Criminal Acts Committed by You: While this policy covers illegal arrest or imprisonment of the insurance holder, if found guilty of the accused charges, you might have to fend for yourself.
Natural Disaster or War: Damages suffered as a result of natural disasters or wars are not covered by this umbrella. Say you suffered heavy damage to your building during a rainstorm or hurricane, your base insurance policy will be the only thing you have to rely on.
Intentional Acts: Just like many base insurance policies, umbrella insurance doesn’t cover your loss where the damages caused are intentional.
Liability Under a Contract: Also, you can’t rely on umbrella coverage to take care of any loss incurred from any form of contractual agreement. If your base insurance isn’t enough, then the bill is on you.
Injury Suffered by You: Lastly, the umbrella policy doesn’t cover any damages suffered by you or your family member.
Who Needs an Umbrella Insurance?
Many insurance companies often advise their clients to apply for the umbrella policy since anyone can wake up any day and decide to press a high lawsuit against anybody. And what’s more? You’ll be shocked that judges will award an exorbitant fine against you and you have to pay. But do you really need an umbrella insurance? What are the possibilities that you’d find yourself in a situation where your base insurance won’t suffice?
Before deciding to opt for an umbrella plan, value your assets. Most websites recommend having a net worth of $500,000 before applying for an umbrella policy. Nevertheless, the higher your net worth, the more you need an umbrella plan to cover your head on rainy days.
How Much Does Umbrella Insurance Cost?
It’s impossible to give a general cost of umbrella insurance since some variables influence the cost. Variables such as the amount of coverage you buy, your location, your net worth, and other base insurances that are in place, among others, are some basic factors that influence the cost.
For instance, you could buy an umbrella policy for $200 in premiums for $1 million of coverage. But if you buy $100 million of coverage, the cost could be significantly reduced. In a nutshell, consult your insurance agent to negotiate the cost of this plan.
Remember This:
Umbrella insurance is good, but it’s not everyone that needs one. If you often find yourself in any of the situations outlined above, then you most likely need an umbrella. Consult with your insurance broker and ensure you have a clear understanding of the umbrella plan’s coverage.