It’s important to keep your financial livelihood in mind when planning for the future. A common way to do so is to ensure that all of your assets are well-insured. Liability automotive insurance and homeowner’s insurance are common measures of precaution, but they aren’t always enough. Some people opt for extra protection with a product called umbrella coverage. Read on to find out what an umbrella policy is, what it covers and whether you should consider buying one.
What is an umbrella policy?
An umbrella policy protects you from liability in the event that you are legally responsible to pay for more than what your primary insurance policy will cover. Homeowner’s and vehicle insurance will cover most claims, but in the event that costs exceed your policy’s limit, an umbrella policy pays the difference. Most insurance agencies offer some form of umbrella policy that can usually be bought in million-dollar increments. The likelihood of using an umbrella policy is low, since most claims will be covered by your primary insurance, so the yearly premium for an umbrella policy is significantly less than for a homeowner’s or automotive insurance policy.
What does an umbrella policy cover?
Since umbrella coverage is a general liability product, it can be applied to a range of financial obligations. For example, if you are found at fault in a car accident that resulted in $500,000 in damages, and your vehicle insurance policy has a payout limit of $300,000, an umbrella policy for $1 million would cover the difference by providing a combined liability coverage of $1.3 million. This is especially useful in legal settlements: In the event that you are sued, an umbrella policy can be used to pay a settlement amount not covered by insurance, as well as legal fees.
Do you need an umbrella policy?
The decision to take out an umbrella policy is one you should discuss with your insurance agent or financial planner. Having a regular source of income is one reason you may want to consider an umbrella policy. If a judgment is made against you, and you are unable to pay the settlement, a court can seize your wages and use future earnings to pay your debt. Umbrella coverage might also be beneficial to a landlord or building owner. In the event that a tenant sues and wins, an umbrella policy can cover the portion of a settlement that regular insurance will not. If you’re interested in taking out an umbrella policy, speak with your financial advisor about the amount of coverage you need and which policy options will keep you protected.
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