Umbrella insurance, also known as extended liability insurance, is an insurance policy that goes beyond the coverage provided by other policies. Like an umbrella, it can cover a wide area and protect what’s underneath. These policies are useful for anyone who needs to protect high-value assets or who might need additional protection from lawsuits due to their line of work. Here’s how it works:
Understanding the Name
Many people are confused by the name, but the concept is quite simple. Just as an umbrella can cover anything under it, so too can this insurance policy. You request an umbrella policy when you need to cover a variety of assets or to protect yourself. Another way to think of it is that you only use umbrellas in rainy weather. When it rains, it pours, and your umbrella policy is there to protect you.
However, umbrella policies work differently from most insurance products. Umbrella coverage is never the primary insurance policy. It’s always a secondary form of coverage. So, when would you actually need to use it?
When Does It Apply?
As a form of secondary coverage, your umbrella policy will only be used if you exceed the limits on another insurance policy. For example, if you have a homeowner’s insurance policy of $250,000 and an umbrella policy of $500,000, you have a combined $750,000 in coverage on your home. The first $250,000 will be paid by the homeowner’s insurance provider if anything happens to your house. After that, umbrella coverage will cover the rest.
One of the most common uses for an umbrella policy is to protect the individual from liability in lawsuits. Suppose you rent out that aforementioned home on Airbnb and a fire happens while a visitor is present. You might lose the house to the fire, but that visitor may also have injuries and could sue you for damages. Homeowner’s insurance will handle the fire damage, but what will be left to protect you?
Who Might Need It?
Anyone exposed to a higher level of risk should consider an umbrella policy. Landlords ought to protect their investments and business from lawsuits. Similarly, other professions expose people to a higher degree of risk. For instance, journalists are often accused of libel and slander. Umbrella coverage could be very useful against those kinds of lawsuits. Business owners or franchisees should likewise consider additional coverage against common accidents.
Jobs where you can injure someone else while at work also merit additional coverage. A commercial truck driver may want more coverage than what their automotive insurance allows. Doctors can use umbrella coverage to protect their private practice and themselves from malpractice suits. If you’re not sure whether an umbrella policy would be useful for you, ask an insurance expert.
The Value of an Umbrella Policy
Considering that lawsuits can easily extend into the hundreds of thousands of dollars or more, it pays to invest in a wide insurance policy. Umbrella policies give additional peace of mind and prepare you for the absolute worst. A small payment could lead to major savings in the future.