What is umbrella insurance and do I need it?

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You might be surprised to learn that you could need another type of insurance.

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What Is Umbrella Insurance?

Umbrella insurance, also known as excess liability insurance, is a type insurance that covers gaps in other policies. Umbrella insurance can be used to cover expenses related to claims that exceed the coverage of your existing insurance.

Umbrella insurance can be thought of as an additional layer of protection that will help you avoid financial hardship in the event of a major accident. It acts as a fail-safe for your assets and personal savings.

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What umbrella insurance covers and how it works

An umbrella policy will help you to pay the damages if you are sued for damages beyond your homeowners insurance, car insurance, or any other coverages.

This may sound unlikely, but it is more common than you think. Let’s take a look at an actual example to show how umbrella insurance works to protect you in case of an unplanned event.

You may have heard about Georgia’s 2014 Snowmageddon, when forecasts for unusually high snowfalls midweek were mostly ignored. People fled their homes to avoid the snow falling fast and thick at lunchtime. It quickly became chaotic when you combine Atlanta’s traffic congestion and existing traffic problems with bad winter weather, untreated roads and residents who don’t have any experience in navigating such conditions.

Imagine you were one of these drivers. Your car spun on a snowy hill as you attempted to drive home. The car in front of you was totaled — worse, multiple people were seriously injured.

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How Much Umbrella Insurance Costs

The coverage limits for umbrella policies start at $1million and can go up to $5 million in some cases. Basic policies that cover the lower end can run between $150 and $300 each year.

This rule protects insurance carriers from individuals who try to obtain minimum state liability coverages (to lower their auto and homeowner policy premiums), and supplement those coverages by purchasing an umbrella policy at a very low price.

Who is eligible for umbrella insurance coverage? How much?

Umbrella insurance can be an optional policy that is not required by state law. You might still want to consider umbrella coverage.

  1. You have substantial savings or assets that you want to protect.

It is equally important to protect your assets as it is to grow them, especially considering that umbrella insurance can be very affordable.

  1. You could injure yourself or others on your property.

Are you able to rent, lease or borrow items that could cause injury? You could be responsible for large expenses if someone is hurt while on your property.

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  1. You are responsible for the actions of others and could be sued.

Your responsibilities could make you vulnerable if you are a landlord, a coach for kids’ sports, or a member of a board. You can offset major expenses incurred through this work by having umbrella coverage.

  1. You can travel to exotic places or explore the wild side.

Are you a part of sports that can injure others? If you inflict injury on someone else and they sue, umbrella insurance would likely protect you. You can also be protected from liability claims if you travel outside the United States.

  1. You are a huge deal.

You should consider umbrella coverage if you want to be protected against defamation lawsuits like libel or slander. These proceedings can quickly become costly.