When you purchase insurance, you choose the limits to which the insurance company will pay out in the event of an accident or injury. For example, property damage liability insurance coverage for your car might cover damages costing up to $20,000 to repair. But what happens if you cause $50,000 worth of damage?
Umbrella insurance fills in the gap between the amount of money it will cost to fix damage and your policy limits. It is usually purchased for an amount between $1 and $5 million, according to MSN, and is most helpful if you are ever sued for extensive damages.
Slip-and-fall accidents, for example, often result in litigation. Let’s say your friend Bill visits your home and slips on a patch of ice on your back porch. Bill decides to follow the rapidly growing trend and file a lawsuit to recover not only reimbursement for his medical bills, but punitive damages as well. Your homeowner’s insurance policy might not cover those punitive damages, but your umbrella insurance might.
Umbrella insurance will also protect you if you cause a serious car accident involving a very expensive vehicle. Your neighbor’s brand new Lamborghini Gallardo is worth far more than $20,000, and if you rear-end it three days after he drove it off the lot, your regular car insurance might not be sufficient to repair it. Umbrella insurance can be a lifesaver.
You can also purchase umbrella insurance that covers other types of property, such as renter’s insurance covering the property in a rental unit, or boater’s insurance covering a vessel. It is important to look at all of your property to determine where you might need additional coverage.
Although umbrella insurance will add additional money to your premium, it is not as expensive as it is sometimes made out to be. According to MSN, adding umbrella insurance might cost you as little as $200 per year, which is nothing compared to a $5 million lawsuit.
Talk with your insurance agent if you are considering umbrella insurance coverage. He or she can explain the options available to you and how they will fit with your existing policies.