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Umbrella Insurance

What Is It?

Umbrella insurance is a type of liability insurance that gives you additional coverage above your existing insurance policies, including homeowner’s insurance and car insurance. This type of insurance is designed to protect you against lawsuits and claims that can be financially devastating, such as a very serious car accident.


How Does It Work?

This form of liability insurance is meant to supplement your existing policies by increasing your coverage limit. An umbrella policy can protect your personal assets if you face a significant claim or lawsuit against you that is directly related to your vehicle or home. Umbrella policies also offer broader coverage to cover legal fees, libel, slander, and false arrest.

If you are found liable for a claim and need to pay damages, your existing home or auto policy will pay up to your policy limits. If the claim exceeds these limits, your umbrella policy will kick in. As an example, if you are found at fault for a car accident that results in injury to the other driver, your regular car insurance may cover the other driver up to your policy limit, such as $150,000. If the driver’s injuries and other damages are severe, you may be legally liable for damages beyond the $150,000 covered by your insurance. If you are sued, your personal assets can be at risk. This is where an umbrella policy comes in.

What Does It Cover?

In general, an umbrella policy covers:

  • Bodily injury
  • Personal injury
  • Property damage
  • Landlord liability

A policy is unlikely to cover personal belongings, business losses, oral and written contracts you’ve entered, and the consequences of your criminal or intentional actions such as restitution.

Umbrella insurance policies are usually sold in $1 million increments at an affordable rate. An umbrella policy can help protect you against financial devastation if you do not have enough insurance coverage for an at-fault accident. To choose an appropriate coverage limit, consider the risks you may face, the total value of your assets — such as retirement funds, investment accounts, and property — and the potential loss of future income if you face a lawsuit.