An umbrella insurance policy is a type of liability insurance that works across different types of policies. For example, a typical umbrella policy will cover you against liability claims related to
your car and home insurance policies. Umbrella policies do not replace having liability insurance for the home or car, but serve as an
additional, large buffer if the liability costs go beyond the limits of their respective policies.
How Umbrella Policies Work
An umbrella policy is not purchased for a specific property. Instead, the policy is purchased for the person or family and serves, as the name implies, as shield against liability costs. As an
example, you might have a $50,000 limit on your car insurance, but medical and property damage costs can very quickly eat through that limit. Without the umbrella liability coverage, you could end
up facing many thousands of dollars in out of pocket expenses. Umbrella insurance is a supplemental policy that operates when those other policies have been exhausted, and it will not act as a
substitute for having them.
Applying for Coverage
When you apply for an umbrella policy, you will need to provide a lot of information. The underwriter will need to know your insurance filing history, your credit score, and a complete list of all
property you own which could be used as a liability claim. If you own rental properties, those will need to be listed, and if you have a pool or other potential liability risks at home, those will
need to be listed as well. Umbrella policies have very broad applications and the insurance company needs to have a clear picture of what the risks they are insuring against might be.
Umbrella Policy Limits
Umbrella liability policies are typically written for values of $500,000 to around $5 million. Buying a policy that is too small could still leave you with personal costs, and buying too large a
policy means paying higher premiums for unnecessary coverage. Since your home and other property can be at stake if someone files a lawsuit against you in a liability claim, having an umbrella
policy capable of protecting your property is a vital concern.
Spreading Out the Coverage
The limits of an umbrella liability insurance policy are cumulative. That means that you can exhaust the liability limits of your car insurance, use $100,000 of the umbrella policy to settle the
outstanding medical and property damage claims, and still have coverage remaining to apply to home or auto liability in other cases.
Umbrella Policies are Cost Effective
An umbrella policy is the least expensive way to get plenty of liability insurance. Because an umbrella policy is a secondary coverage, the underwriters can offer lower rates under the idea that
you may not file any claims against the policy, and that even if you do; the settlement will be buffered by the limits of the primary policy. Having a lot of liability coverage to pay for damages
and injuries is a good idea, and insurance companies offer these policies as a way to avoid financial disaster.