Umbrella insurance supplements other insurance policies in two primary ways:
- Increased Liability Limits:
- The core function: Umbrella insurance provides a massive boost to your liability coverage beyond the limits of your home, auto, or other liability policies.
- Example: If your auto liability limit is $500,000 and a $1 million umbrella policy, your total coverage in a severe accident would be $1.5 million.
- Protecting your assets: If a major lawsuit exceeds your other insurance limits, it could wipe out your savings and assets. The umbrella policy is your safeguard.
- Expanded Coverage for Certain Situations:
- Broader protection: Umbrella policies often cover liability situations that your homeowners or auto insurance might exclude, such as:
- Lawsuits for libel or slander
- False arrest or malicious prosecution
- Certain lawsuits arising from international travel
- Filling in the gaps: While the increased liability limit is the main benefit, this added coverage type provides further peace of mind.
How it works in practice:
- Scenario: A visitor seriously injures themselves in your pool. Medical expenses and a lawsuit exceed your homeowners liability limit. Your umbrella policy kicks in to cover additional costs and legal fees.
- Scenario 2: You accidentally post something negative online that damages someone’s reputation. They sue for defamation, which your homeowners insurance might not cover. Your umbrella policy could help cover defense costs and potential judgments.
Important considerations:
- You need underlying insurance: To qualify for an umbrella policy, you must maintain other liability coverage like homeowners and auto insurance with specified minimum limits.
- Not all-encompassing: Umbrella policies typically don’t cover intentional acts, business-related liabilities (would need separate business insurance) or contractual liabilities.