how an umbrella insurance policy works
the added coverage provided by an umbrella insurance policy is most useful to high net worth individuals who own a significant amount of assets or very expensive assets and are at risk of being sued small businesses may also use an umbrella insurance policy to guard against potential monetary damages arising from claims the premium for an umbrella insurance policy may be less expensive if it is purchased from the same insurer that provided the original auto homeowners or watercraft insurance depending on the provider the policyholder who wants to add an umbrella insurance policy must have a base insurance coverage of 150 000 to 250 000 for auto insurance and 250 000 to 300 000 for homeowners insurance umbrella insurance is often referred to as excess liability insurance if a policyholder is sued for damages that exceed the liability limits of car insurance homeowners insurance or other coverage types an umbrella policy helps pay what they owe in other words if the dollar limit of the original policy has been exhausted the umbrella policy acts as a fail safe so the insured person doesn t have to dip into savings and other assets 1umbrella insurance may also provide coverage not included in a basic insurance policy such as libel slander and false imprisonment special considerationspeople who purchase umbrella insurance may own expensive property or have significant savings those who own dangerous items that can cause injury such as swimming pools trampolines or dogs might also buy an umbrella insurance policy if you have a mortgage loan homeowners insurance is required by mortgage lenders however if you have high risk items on your property an umbrella policy can provide additional liability coverage that exceeds that homeowners policy people who engage in activities that increase their chances of lawsuits may also purchase umbrella insurance those activities might include the annual cost of a 1 million personal umbrella insurance policy2example of an umbrella insurance policyto understand how umbrella insurance can help consider the following scenario a driver runs a red light and accidentally hits another car causing significant damage to the vehicle and injuring several people with car repairs totaling 50 000 and the treatment of the injuries eclipsing 500 000 the driver at fault may be liable for expenses that go far beyond the coverage limits of their insurance an umbrella insurance policy will pick up the additional liability costs beyond the limits of their car insurance coverage 