Umbrella insurance is a relatively cheap way to protect your assets from the sudden and serious financial impact of a lawsuit. It covers legal fees and litigation, extra property damage and general excess costs from auto or homeowners claims that exceed the limits on your base policies.
It’s especially useful for those with high-value assets and elements that put them at a higher risk of liability. These include owning a home, owning a business or employing household staff.
Coverage for Excess Liability
Umbrella insurance provides additional liability coverage beyond the limits of the policyholder’s auto, homeowners and watercraft policies. This can be valuable in expensive situations where medical expenses and/or repairs exceed the base insurance limit. It can also be useful when a client has a high risk of liability, such as those with domestic employees or those who own a home with a swimming pool.
An umbrella policy extends the coverage limits of the underlying policy to include losses that are not covered by the underlying policy, such as bodily injury and property damage claims. It can also provide protection against lawsuits resulting from libel, slander, false arrest and character defamation.
Often misunderstood, umbrella insurance and excess liability are two different policies that offer a range of benefits to the insured. These coverages help protect the assets of a policyholder when they are sued by a third party and must pay a judgment that exceeds the limits of their underlying liability insurance policies.
The most common situation where an umbrella policy is required by a client is when the sum of their assets, such as ordinary checking and savings accounts, 401(k) investments and home equity, exceeds the limits of their homeowner’s or auto liability policies. When that happens, the person will likely be forced to liquidate their assets to pay for a judgment.
For example, a person may have $300,000 in auto insurance and the medical bills for multiple people total $400,000 in damages and injuries. The umbrella policy can cover the remaining $100,000 to help pay for medical expenses and a totaled car.
In a similar vein, a contractor might need to pay an extra $400,000 to cover job-site accidents that would be excluded by their general liability and commercial auto insurance. In this scenario, the contractor could have purchased an umbrella policy that would have protected them against these incidents by extending their insurance to cover damages up to $2 million.
Both umbrella and excess liability policies are important components of a comprehensive personal risk management strategy. However, a client’s needs should be determined by a risk assessment conducted by their agent or broker. This includes the total value of the assets the client owns, as well as their future income expectations and their likelihood of being sued.
Coverage for Damages Resulting from an Accident
Umbrella insurance can provide additional coverage for damages that occur in a variety of situations. These damages can include medical costs, legal fees, damage to property and other liabilities.
Liability claims, which can result from an accident or other mishap, can have a significant financial impact on you and your family. These expenses may be related to hospital bills, compensation for injuries, or funeral costs.
Bodily injury liability coverage covers medical and other costs for people who are injured in an accident you are responsible for. It also covers costs relating to pain and suffering, as well as loss of income.
The policy limits for bodily injury liability can be quite high, and they’re often worth purchasing to protect your assets in the event of a lawsuit.
Property damage liability coverage can help pay for the cost of repairing or replacing a vehicle, whether you’re at fault for an accident or not. It also can help cover the cost of repairs to your home if you’re found liable for an accident or other mishap.
Landlords should consider a liability umbrella to protect themselves from liability claims that result from an accident or other mishaps at their rental property. If someone is hurt at your rental and you’re found liable, your umbrella can help to cover their damages after your landlord policy reaches its limit.
If you’re a volunteer board member, an umbrella policy can offer coverage for any lawsuits you face due to the work you perform on your board. Your board’s policies may also determine if you can claim this kind of coverage, and it’s important to consult your insurer to be sure you have the coverage you need.
Umbrella insurance is designed to provide extra protection when the underlying liability coverage on your auto, homeowners or watercraft policies goes over their limits. It can also provide a safety net for other liabilities that come along with your career or profession. The amount of your umbrella coverage can depend on a variety of factors, including the value of your assets and your perceived risk.
Coverage for Damages Resulting from a Crime
Umbrella insurance can help you protect your assets from the financial consequences of a serious crime or lawsuit. The coverage can protect you from financial losses that exceed the limits of your auto, homeowners or boat policies.
The policy typically provides $1 million to $10 million of liability protection, which is a significant amount of coverage. It can also cover claims like libel, slander and defamation.
In many cases, this type of insurance will also cover legal defense costs and other expenses related to a lawsuit. In addition, the policy may include a deductible.
This is a great option for people who are worried about their retirement savings and other financial holdings being taken away from them by a lawsuit. With an umbrella policy, you can be protected from a criminal judgment or recovery that may wipe out your hard-earned savings.
For example, if someone posted a slanderous statement about you on social media, and a judge found you guilty of it, the settlement could wipe out your savings. Having an umbrella policy would keep you from having to give up these valuable assets or sell your home to pay for the legal costs of the lawsuit.
Another way to protect your finances is through the Crime Victims Compensation Program, which offers compensation for certain injuries resulting from a crime. The program is designed to compensate victims of certain violent crimes who have sustained bodily injury, physical injury or emotional trauma as a result of the crime.
If you are a victim of a qualifying crime, you can apply for benefits within one year after the incident occurred. You must be a California resident and you must meet the eligibility requirements. You must be able to show that you suffered bodily injury, physical injury or death as a result of the crime.
Vandalism and malicious mischief is the most common type of crime that results in an insurance claim. It covers damage to your property as a result of vandals, such as trashing your property or breaking into your home and destroying it. This coverage is usually written as an endorsement to your standard home or auto policy.