Umbrella Insurance: What It Is and What It Does
Individuals and businesses purchase liability insurance to protect themselves against legal liability costs for injuries and property damage. Sometimes the limits of a policy aren’t enough. That’s where an umbrella policy comes in.
The Meaning of Umbrella Insurance
Liability coverage is usually for a home, auto or boat. However, it only pays up to a stated limit. There is no guarantee a claim or judgement won’t exceed the coverage limit. An umbrella policy is additional liability insurance that provides supplemental coverage in those situations when a primary policy doesn’t pay all of the costs of a claim or lawsuit.
What Umbrella Coverage Does
Umbrella policies protect you in two ways. First, if your liability in a particular situation exceeds your primary policy dollar limit, the umbrella policy kicks in to pay the difference. Second, umbrella coverage pays for things a primary policy excludes. For example, it covers libel, slander and false arrest claims, and protects rental property as well.
How Does Umbrella Coverage Work?
Suppose a visitor is injured on your property. You are liable. Your liability policy pays up to $250,000, but the claim comes to $350,000. You are on the hook for $100,000 unless you have umbrella coverage. If you do, it pays the amount that remains after primary policy coverage is exhausted.
Types of Umbrella Coverage
There are two general categories of umbrella coverage: personal and commercial. It’s important to realize that an umbrella policy is not the same as excess insurance. An excess insurance policy is typically an add-on to a primary liability policy. This insurance follows from the primary policy, which means it will usually have the same exclusions as the primary policy.
Benefits of Umbrella Insurance
In addition to paying amounts in excess of a primary liability policy limit, an umbrella policy covers property damage even if you are at fault. It also covers claims for serious injury to another person excluded by the primary policy, as well as judgements resulting from libel or slander. If you own rental property, umbrella coverage protects you if a visitor or tenant is injured, if other property is damaged, and even when a loss is the result of an action by a tenant.
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