What happens if a claim costs more than the limit on your home or car insurance policy? Unfortunately, any amount owed that is over your policy limit is your responsibility and can be financially devastating. The good news is, you can easily protect yourself from large claims by adding low-cost umbrella insurance to your policy.
Umbrella insurance provides additional liability insurance that goes into effect when a claim exceeds the limits on your homeowners or car insurance policy.
An umbrella policy works with your existing home or car insurance—it can even cover some losses that home and auto insurance do not cover. You can purchase umbrella insurance in various amounts—from one million to five million dollars or more. That is a lot of additional coverage for not a lot of money. Contact a Leavitt Group agent to find how affordable an umbrella policy can be for you.
Josephine Yonangitti—Personal Account Executive
If there is a covered liability claim under your car or homeowners insurance policy, and the dollar amount of the judgment is greater than the coverage limits you have purchased on those policies, umbrella insurance goes into effect.
Before you can purchase umbrella insurance, many insurance companies do require you to carry a certain amount of underlying personal liability coverage on both your homeowners and automobile policies. In addition, you may also be required to insure both your home and vehicles through the same insurance company you are purchasing the umbrella policy from.
The big question is often "How much coverage should I carry?" The answer usually depends on your net worth. Calculating the value of your home, stocks, mutual funds, and retirement accounts is the first step to determining the amount of coverage you should purchase under an umbrella insurance policy.
Any claim amount exceeding your standard liability policy is your responsibility to cover. In order to cover the costs of a large insurance claim against you, you could be forced to use money from your current assets, such as savings accounts, 401(k)s, or even your home. Your future earnings could be at risk as well. While an excessively large claim or catastrophic event is unlikely, insurance companies offer umbrella policies for customers who want to protect their assets and feel more secure. The good news is umbrella insurance is very affordable.
An umbrella insurance policy is suitable for people of all levels of personal wealth. Here are four situations where umbrella policies were vital:
A driver loses control on icy pavement and strikes another car. The other driver suffers serious injuries tallying up to $900,000. The at-fault driver has an auto insurance policy that covers $250,000 for injuries to any one person. If he has an umbrella with a $1,000,000 limit, it will pay the remaining $650,000. Without an umbrella, the at-fault driver would have been personally on the hook for that huge sum.
A homeowner has insurance that covers her liability for bodily injuries to others up to $300,000 per accident. A neighbor's child drowns in her swimming pool. The neighbor's estate sues her for $1,500,000. Her homeowner's insurance will pay $300,000; but if she doesn't have an umbrella, she is responsible for the remaining $1,200,000.
A man has a boat insurance policy that covers his liability for injuries to others up to $300,000. He loans his boat to a friend for the weekend. His friend is reckless and collides into another boat. The survivors and the estates of the deceased sue the driver and the boat owner. The court finds the owner liable for $1,000,000 of the judgment. His boat policy pays $300,000, but he is responsible for $700,000 because he didn't have an umbrella policy.
A woman loudly repeats a rumor she heard about her neighbor. The neighbor sues her for defamation of character and wins $500,000. The woman's homeowners insurance does not cover defamation, but her $1,000,000 umbrella does. After she pays a $250 deductible, her umbrella pays the rest.