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What Is Umbrella Insurance (Explained: All You Need To Know)

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What Is Umbrella Insurance 

Umbrella insurance is a type of insurance protection that you can get to cover you over and above the coverage limits you may have on other policies or to provide you with protection for claims that may be excluded by other policies.

In the first scenario, if you have an existing policy and you exhaust your coverage limit, your umbrella insurance can be triggered to help you.

For example, if you have an existing insurance policy like homeowners insurance and have coverage for $300,000, you may get umbrella coverage to protect you beyond $300,000 if your damage happens to exceed that limit.

In the second scenario, you can get an umbrella policy to cover you for liability claims that are excluded by your liability policies.

For example, if you have a claim for liability on a rental unit you own and your coverage is excluded by your policy, you may be able to an umbrella policy to protect you.

What Is Covered Under An Umbrella Insurance Policy

An umbrella insurance policy will provide you with two important types of protection:

  • You get coverage beyond the limit of an existing policy 
  • You get coverage for claims that are not covered under a liability policy 

Let’s look at an instance where you may need coverage beyond your existing policy limits.

Imagine that you have an existing policy giving you coverage for $200,000 for damages.

Assuming you end up suffering a loss of $250,000, your insurance policy will cover you for $200,000 as that’s your policy limit.

However, if you had an umbrella policy for an additional $100,000 coverage, you would have had the first $200,000 paid by your main policy and the additional $50,000 from your umbrella policy.

Now let’s look at a liability claim that is not covered under another liability policy.

Imagine that you own a rental property, someone falls on your property and files a lawsuit against you.

If you do not have any liability coverage for this under any other policy, your umbrella policy may cover you for this.

In a nutshell, here are the coverages you can expect from an umbrella insurance policy:

  • Coverage for bodily injury liability 
  • Property damage liability 
  • Coverage for certain lawsuits
  • Coverage for personal liability 
  • Malicious prosecution
  • Libel or slander
  • False arrest 
  • Violation of privacy
  • Wrongful eviction 

What Is Not Covered By An Umbrella Policy

Although an umbrella policy can cover you beyond the limits of an existing policy or for certain claims excluded by other policies, it does not cover you for everything.

It’s important that you properly evaluate your needs to determine whether or not an umbrella policy is right for you.

In general, an umbrella insurance policy will not cover you for:

  • Bodily injuries you suffer
  • Damages to your personal property 
  • Your intentional act causing damages to others
  • Criminal act causing damages to others 
  • Your contractual liability 

Let’s look at a few things not covered by an umbrella insurance policy.

Personal Property Losses

Personal umbrella coverage helps protect personal property losses suffered by others but not for your own property.

As a result, your personal umbrella policy will get triggered to compensate you for expenses you incur if you’re held responsible to cause damages to someone else’s property.

Business Losses

Your personal umbrella insurance policy will not cover you for your business operations, business losses, or damages to your business property.

If you need coverage for your business, you’ll need to get commercial umbrella insurance to add protection to your business liability insurance.

Contractual Liability 

Your personal umbrella policy will not provide any form of coverage in case you are found liable under a contract.

As a result, if you are served with a lawsuit for services you got under a contract or for your failure to respect contractual obligations, you will generally not get any coverage under your personal umbrella policy.

Intentional Conduct or Crimes

Your umbrella insurance will not cover damages that you cause to other people’s property intentionally or following the commission of a crime.

Intentional conduct engaging your liability will not be a covered claim.

When To Get Umbrella Insurance

You are not required to purchase umbrella insurance by law.

As a result, if you purchase umbrella insurance, you are doing so from a risk management perspective.

However, when should you get umbrella coverage?

In general, those who have a lot of assets or who engage in activities that may to possible lawsuits may want to consider getting an umbrella policy.

Here are some examples of when you may consider getting an umbrella coverage:

  • You own a lot of assets
  • You want to protect your savings 
  • You own things that can lead to injuries (like having a pool, trampoline, guns etc)
  • You are a landlord and own rental properties
  • You have teenage drivers in your household 
  • You participate in sports 

Frequently Asked Questions

Let’s look at a few common questions related to what is umbrella insurance.

What Umbrella Insurance Not Cover

Generally, umbrella policies provide broad coverage to policyholders.

However, there are limits and exclusions to umbrella insurance as well.

Here are some coverages that you will not be able to get with an umbrella policy:

  • Damage to your own property
  • Damages that you cause intentionally 
  • Liability in business activities 
  • Business losses 
  • Liability in professional activities 
  • Liability under a contract 
  • Liability related to wars 
  • Criminal actions

How Does Umbrella Insurance Work

Let’s look at an example of how an umbrella insurance policy works so you can better understand the concept.

Imagine that you’re in a serious car accident where you cause bodily injuries to others for a total sum of $400,000.

Assuming that you have coverage for bodily injuries in your auto insurance for $250,000.

In this case, your insurance can only cover you for $250,000 but you have a total liability of $400,000.

If you have umbrella insurance, you can use your umbrella policy limit to cover your losses beyond your auto insurance bodily injury limits.

In this case, if you had an umbrella limit of $200,000, you would be fine as it will cover you for the extra $150,000 beyond your auto insurance coverage.

Do You Need An Umbrella Insurance Policy

Everyone’s insurance needs and financial situation is different and so it’s difficult to give everyone a cookie-cutter answer about the need for having an umbrella policy.

In general, you may want to consider getting umbrella insurance if you engage in activities that put you at higher risk of getting sued and being held liable for damages.

For example, if you personally own rental units, the chances that you may get sued and be held liable is higher than others.

You’ll need to assess the nature of “risk” that you may be exposed to in your daily life and determine whether the insurance coverages you currently have provide you sufficient protection.

In some cases, you may consider that paying extra premiums for umbrella insurance may be well worth the peace of mind to get financial protection in case something were to go wrong.

If you do not like taking any risk whatsoever and don’t mind the extra umbrella insurance premiums, then it may be worth it for you.

You may also think it’s worth it if you may be exposed to liability that may potentially exceed your current policy limits.

Is Umbrella Insurance The Same As Excess Liability Insurance

Although some refer to umbrella insurance as excess liability insurance, it’s important to note that they are not the same type of insurance.

An umbrella policy is a type of insurance policy that provides you with additional liability coverage over and above an underlying policy such as a homeowners policy or auto insurance policy.

On the other hand, excess liability insurance provides coverage for the same risks that you’ve insured yourself against in your underlying policy and with the same exclusions.

In other words, if you have coverage for a specific type of liability under your policy, you’ll get additional coverage with excess insurance.

However, although certain types of liabilities may be excluded from your underlying policy, with umbrella insurance, you may still get coverage. 

What Is Umbrella Policy Takeaways 

So there you have it folks!

What is umbrella insurance policy in simple terms?

How does umbrella insurance work?

In a nutshell, umbrella insurance is a type of liability insurance that can cover you beyond your existing insurance liability coverage.

In addition, an umbrella policy can also cover you for certain types of claims that your other policies do not cover such as libel, slander, false imprisonment, or something similar.

Anyone can take advantage of an umbrella policy as it extends policy limits and provides additional protection in the event of liability.

However, it does not mean that it’s beneficial for everyone to get.

You’re best to speak with your insurance professional or broker to get advice on your insurance needs, the nature of financial protection that is right for you, and the type of risk you are trying to protect yourself against.

I hope I was able to answer your question what is umbrella liability insurance, what an umbrella insurance policy is designed to cover, what it does not cover, and how it works.

Good luck!

Let’s look at a summary of our findings.

What Is Umbrella Insurance Summary

  • An umbrella insurance is a type of insurance policy that you can get to add additional coverage over and bove another insurance policy you own
  • When the underlying insurance policy limits are reached, you can get extra coverage through your umbrella policy 
  • It generally covers bodily injuries, personal injury, property damage, and landlord liability 
  • The main benefit of an umbrella insurance policy is to have coverage for any out of pocket expenses for another person’s medical bills or your legal bills should you be held liable for damages 
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