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Umbrella Insurance Policy: How it Works and What it Covers

Once you exhaust the limit of your prevailing insurance policies, umbrella insurance comes into play to provide you with additional coverage. Beem explains how umbrella insurance works and what it covers.
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Umbrella Insurance Policy: How it Works and What it Covers
Also known as extra liability insurance, umbrella insurance has been gaining popularity as it protects a policyholder from unprecedented lawsuits and major claims. Let's understand what all umbrella insurance entails.
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If you find yourself stuck in a situation where you lose a lawsuit for an amount higher than your existing coverage, a good umbrella insurance policy could help protect your assets. An umbrella policy covers injuries, property damage, certain lawsuits, and personal liability claims.

With a potentially appropriate umbrella policy, you will be less likely to succumb to a lawsuit for a sum greater than your existing insurance will pay. This blog will examine how an umbrella insurance policy works, its benefits, how much it costs, and what it won’t cover in detail. Let’s explore!

What is Umbrella Insurance?

An umbrella policy provides “excess liability insurance” (additional coverage) beyond the standard liability coverage in various policies, including auto insurance, homeowners insurance, and watercraft insurance.

An umbrella policy handles expensive situations, such as when your “base” insurance policy cannot cover the expenses. It can be considered asset protection, noting that it prevents you from having to give up your assets to settle a lawsuit.

For umbrella insurance, you may require a minimum liability insurance for your vehicle, home or other assets. For instance, an auto insurance policy can need $100,000 in property damage and $250,000 in injuries.

If you are facing confusion about choosing the right car insurance policy, Beem provides a one-stop solution to compare multiple options from major insurance providers. Use Beem to compare different car insurance policies and save hundreds of dollars every year.

How Does Umbrella Insurance Work?

Umbrella coverage kicks in when you exceed the liability limits of your base car insurance policy. Umbrella insurance may provide coverage during the following situations:

When you cause a severe accident on the road or a boat

Medical bills from auto or boating accidents can add up quickly, mainly if more than one person is involved. In the event of a claim, your auto or boat insurance policy would pay first, up to the maximum amount, followed by your umbrella policy.

Someone gets bitten by your dog

Typically, homeowners insurance policies cover dog bites under personal liability coverage. You’d have to use your umbrella policy if you’re sued for an amount more than your homeowner’s insurance liability limit (for example, for medical bills, pain and suffering, etc.).

Your car crashes into a building

When someone parks close to a convenience store and uses drive instead of reverse, it can damage the building extensively. While your auto insurance will cover you, an umbrella policy can help when your auto insurance limit is too low to cover the damage to the building.

A person is injured by accident

If you or a family member injures someone during a car accident, umbrella insurance will be beneficial when other forms of coverage are exhausted. For example, suppose your son accidentally throws a baseball into someone’s face, resulting in extensive injuries. Your homeowners’ liability insurance will make the first payment, followed by your umbrella policy.

In response to a board-related issue, you are sued by a charity

You may be covered under an umbrella policy for lawsuits brought against you while serving on a board of directors. The umbrella coverage you receive may differ depending on whether you work for a non-profit or are paid for your time. It would help if you spoke with your insurance agent to determine your coverage. 

Your teenage child is being sued

If your teen posts a libelous comment online and you are sued, what should you do? Your umbrella insurance can cover legal costs and judgments.

Your child damages someone else’s property

In the case of an accident resulting in damage to someone else’s property, your home insurance can cover the damage first, followed by umbrella insurance if the damage exceeds the liability limits of your home insurance.

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Umbrella Insurance Policy: How it Works and What it Covers 3

What Does Umbrella Insurance Cover?

Your homeowner’s or auto insurance policy won’t cover specific liability claims or lawsuits that exceed the liability limits. However, an umbrella insurance policy covers several liability protections, including:

Liability for auto injuries: This helps cover a person’s treatment costs following a car accident. Use umbrella coverage when you reach your auto liability limit. You can also opt for auto insurance with Beem which covers damage to your vehicle, damage to other vehicles or property, and injuries to yourself or others. 

Liability for bodily injury: If someone gets injured after an accident and sues you, umbrella coverage protects you once your liability limit is reached. The money can be used to cover another person’s medical expenses.

Landlord insurance: If someone is injured at your rental property and sues you, this coverage will protect you. Once you have exhausted your liability limit, umbrella coverage can provide assistance.

Liability for property damage: It helps cover the cost of damage to another person’s property or vehicle. Umbrella coverage will become effective as soon as your liability limits are exhausted.

In addition to coverage that isn’t included in a base auto or homeowners’ policy, umbrella insurance often provides coverage for these situations:

  • False arrest, imprisonment, or detention
  • Malicious prosecution
  • Wrongful eviction or entry
  • Invasion of privacy
  • Family members living in your household
  • Worldwide coverage
  • Rental properties you own
  • Personal injury if you’re sued for
  • Libel or slander
  • Payment of defense costs, attorney fees, and other expenses associated with a lawsuit (defense cost coverage is in addition to policy limits)

What Does the Umbrella Insurance Don’t Cover?

The umbrella policy does not cover your injuries or damage to your property. The following concerns are generally not covered by umbrella insurance:

  • Business losses
  • Criminal acts by you
  • Contracts, whether written or oral
  • A deliberate act or injury committed by you
  • Nuclear radiation, war, or terrorism damage
  • A contagious disease, for example, a lawsuit accusing you of giving someone herpes
  • Bills for medical care if someone is injured in your home

Benefits of Umbrella Insurance Policy

As a progressive step in the insurance industry, umbrella policies provide an additional layer of security for insured persons. There is no doubt that umbrella insurance is one of the most innovative products insurance companies offer today. In addition to ensuring your peace of mind, it makes you feel more secure. Buying umbrella insurance can benefit you in the following ways.

  • You can benefit from it if you own multiple assets. The policy covers personal liability, legal liability, and common property risks.
  • An umbrella policy can be purchased at a lower rate if you buy it from the same insurance provider that offers section discounts. 
  • You are covered against threats, dangers, and unforeseen circumstances beyond the scope of any standard insurance policy.
  • There is flexibility in selecting the required sections based on the desired sum insured for various types of primary insurance.

Cost of the umbrella insurance policy

Umbrella insurance typically costs an average of $383 per year for $1 million of coverage. An insurer will determine your umbrella insurance rate based on factors such as:

  • Your Hometown
  • History of your credit score
  • The record of your driving
  • Claim risks associated with umbrella insurance

Average umbrella insurance cost for a single homeowner with two cars and two drivers.

Umbrella Insurance LimitAnnual Cost of Umbrella Insurance
$1 million$383
$2 million$474
$5 million$608
$10 million$999

Average umbrella insurance cost for a person with three homes, four cars, one boat, and three drivers.

Umbrella Insurance LimitAnnual Cost of Umbrella Insurance
$1 million$563
$2 million$713
$5 million$933
$10 million$1,578

Also Read: Can You Dispute an Auto Insurance Claim

Conclusion

Even the best-intentioned person can be liable for a significant financial judgment in a personal liability lawsuit. Even though you are unlikely to find yourself in this situation, it can be wise to be prepared if it happens.

You can stay prepared to handle any unprecedented expense with umbrella insurance. Use Beem to stay on top of your car insurance needs with top features like comparing quotes from different providers to find the best policy for your needs.

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Author

Fatema Yusuf

Fatema Yusuf

A passionate writer, who loves to write about anything and everything. She usually writes about finance and investment options. She enjoys talking about personal development and loves to help people grow. she loves to cook for kids and upcycle old stuff to give them a new life.

Editor

This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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