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Umbrella insurance is a type of insurance coverage that extends the liability insurance from an auto or homeowner’s insurance policy to cover more situations with higher limits.
Umbrella insurance policies offer extended coverage limits that start at $1 million and will also cover forms of liability such as libel and slander. Also referred to as personal umbrella insurance, it can supplement insurance policies for motorcycles, boats, and other recreational vehicles, too.
Umbrella insurance works by extending your auto or homeowner’s liability insurance coverage. Auto and homeowner’s liability coverage typically can be purchased with limits of no more than $300,000 to $500,000, depending on your insurer and the type of coverage. If your net worth is higher than that, your savings, the equity in your house and even future earnings are at risk if an accident results in a large judgment against you.
That’s where personal umbrella insurance (PUP) can protect you. PUP policies start at $1 million in coverage and are available with limits as high as $5 million to $10 million, depending on the insurer.
So, for example, if you’re at fault in a car accident that results in serious injuries, you could be responsible for substantial medical costs, plus an award for pain and suffering. With the protection of a PUP policy, you’ll get coverage first from your auto insurance, and then your PUP insurance will cover the rest, after deductibles and up to your coverage limit.
Learn more about how umbrella insurance works.
The main benefit of umbrella insurance is that it applies to a broader range of situations than a normal home or auto insurance policy. And it’s especially useful in cases where you are potentially facing a serious financial loss as a result of the claim.
Learn more about what umbrella insurance covers.
Most umbrella policies do not cover physical property damage, your medical bills, or business liability. Some umbrella policies also exclude damage or injuries caused by certain dog breeds or recreational vehicles, among other things.
Learn more about what is not covered by an umbrella insurance policy.
Personal umbrella insurance is designed for people with a high net worth and people who want to protect future earnings.
Before buying personal umbrella insurance, you should assess your assets. Total up your home equity, personal savings, brokerage accounts, retirement accounts, kids’ college fund, and other assets. If the total exceeds the limits of either your auto or homeowner’s insurance, then personal umbrella coverage might be a good investment.
Without personal umbrella insurance, you will be financially liable for claims that exceed your liability limits, and your assets could even be seized to cover the damages.
If you find that your existing insurance policies don’t offer the complete protection you need, then a personal umbrella policy may be right for you.
Learn more about when you might need umbrella insurance.
You can expect $1 million of personal umbrella insurance coverage to cost between $150 and $300 annually, according to the Insurance Information Institute. Each additional $1 million in coverage will cost $50 to $75 per year. This type of coverage is relatively inexpensive because it supplements other policies – and because it covers against circumstances that are relatively unlikely.
Because it is a supplementary form of insurance, you must first get the maximum level of coverage available on your other liability policies before you can purchase personal umbrella coverage.
Learn more about how much umbrella insurance costs.
Written by WalletHub