Before you purchase umbrella insurance, it’s worthwhile to ask how umbrella insurance works. As opposed to other types of coverage, learning how umbrella insurance works is a relatively simple matter of realizing the difference between liability coverage and other types of insurance coverage.
Umbrella insurance functions as a type of liability insurance coverage, protecting the insured from liability in a lawsuit. Finding out that this is how umbrella insurance works could be a slap in the face for those who have already been sued, but could be a lifesaver for those who are high risk for a lawsuit against their person. How umbrella insurance works may not be the easiest thing to understand, but being informed will certainly help your chances of surviving a lawsuit with your retirement, home, and other personal property intact.
Umbrella insurance is an extra insurance policy which extends the liability coverage of your current insurance policy, generally into the millions of dollars. Available for homeowner’s, personal, and auto insurance coverage, umbrella insurance works in the same way in all three insurance situations.
These days, it isn’t uncommon for a lawsuit in a serious accident to bring a settlement in excess of $100,000. Most people, however, under their current auto insurance, may only carry $25,00 to $50,000 of liability coverage. Since insurance only pays up to the amount of coverage available, the insured party must produce the remainder of any settlement not covered by their current liability coverage. This is where umbrella insurance kicks in. After the liability insurance available on your auto or home policy is exhausted, umbrella insurance picks up the remainder of the tab up to that amount of insurance, up to as much as $5 million or more.
Umbrella insurance works well for those in high-risk situations, such as those who drive a lot, or who might have a lot of very large trees on their property which might fall into a neighbor’s home in the event of a storm. For the average consumer, purchasing umbrella insurance is largely a question of how comfortable you are with your insurance’s current liability limit. There is no one yes or no answer about whether to buy umbrella insurance, but learning how umbrella insurance works can help you to make an informed decision about the purchase.