Umbrella insurance is meant to help protect you from large and potentially devastating liability claims or judgments. Personal umbrella coverage comes into play when your underlying liability limits (such as from a homeowners or auto insurance policy) have been reached.
What Does Umbrella Insurance Cover?
Personal Umbrella Insurance Policy in Action
To better understand how a personal umbrella policy works, here's an example: If you're at fault in a car accident that injures another driver, your regular automobile insurance may cover the other driver up to the limit you selected, say $250,000. But what happens if that limit is not enough to cover the other driver's resulting medical bills?
If the other driver's injuries are severe, you may be legally responsible for damages beyond the $250,000 your car insurance policy covers. And, if he sues you, your personal assets could be at stake. Imagine if that injured driver were a surgeon or another highly paid professional. What if the accident you caused resulted in an injury that kept him from doing his job for six months? Suddenly, he's suing you for $1 million to cover the six months he's away from work.
Your automobile policy's liability coverage may pay for up to $250,000, but where would you come up with the remaining $750,000? A personal umbrella policy can help cover the additional costs when your standard insurance policy isn't enough. An umbrella policy could provide the additional coverage you need so that you don't get stuck trying to pay the remaining balance yourself. This extra policy could help protect your bank account, home and other personal property.
In most cases, personal umbrella policies are available in million-dollar increments, from $1 to $5 million. While an umbrella policy is not required, it may offer increased protection in the unfortunate event of an accident.
What Is Generally Not Covered By a Personal Umbrella Policy?
In many respects, the protection provided by a comprehensive watercraft insurance policy (also known as a boat owner’s policy) is similar to the coverage offered in many automobile insurance policies; protection is provided against a number of perils in one package. Typical coverage includes the following:
Your Person Property: While personal umbrella insurance is designed to help cover expenses if you are held responsible for damages to someone else's property, that coverage typically won't apply if you cause damage to your own property. Suppose your bathtub overflows, destroying drywall in your home. Your own damages would be excluded from coverage. But if the overflow destroys the property of your downstairs neighbor, your personal umbrella insurance may cover the damages caused by your negligence, preventing you from paying out of pocket for the loss. It's important to note, though, that any umbrella insurance benefits would kick in only after the underlying policy limits have been exhausted.
Business Losses: Losses related to the operation of your business or damage to your business property would generally not be covered by a personal umbrella policy, says the American Institute of Certified Public Accountants. The exclusion applies even if the business is home-based. For example, if you earn money providing day care in your home, any liabilities that result from that arrangement would likely not be covered. Personal umbrella insurance typically doesn't cover other business-related liabilities such as a malpractice lawsuit, or losses in connection with your paid position as an officer or member of a governing board of a for-profit organization.
Criminal or Intentional Actions: A personal umbrella policy usually won't protect you from the consequences of your own intentionally harmful or illegal behavior; for example, restitution you owe if you are convicted of a crime or damages you intended to cause through your actions.
Contracts: Personal umbrella insurance typically won't protect you from any liability that arises in connection with an oral or written contract you've entered. So if you find yourself facing a lawsuit from someone you've hired to work on your home, for example, it's unlikely that your umbrella insurance would provide protection.
Seek Professional Guidance
Insurance agents and brokers, insurance counselors, and other trained financial consultants can help provide answers to detailed questions about a particular policy. These professionals are also helpful in selecting the right policy and the appropriate amount of coverage.