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Umbrella Insurance: An Illustration

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Reasons Insurance

Umbrella Insurance

 You’ve probably heard of it but do you understand what it is and whether you really need it?

Umbrella Insurance: An Illustration

To begin, let’s look at the case of Tim and his son, Ben. Ben recently celebrated his 16th birthday and received his driver’s license. Shortly after, Ben was involved in an auto accident. He was found to be at fault, as he had run a red light while texting. Ben caused serious bodily injury to the driver and 3 passengers of the other vehicle. The other party sued Tim and Ben in the amount of $1.2M to recover medical expenses and compensate for pain and suffering. The court ruled in favor of the other party and Tim was ordered to pay.

So, will this huge bill be covered by insurance? The answer is yes, at least partially. Tim’s auto insurance policy has a $500,000 liability limit (which is often the max coverage offered on a car insurance policy) and will cover up to that amount. Without additional coverage, Tim and his family would be on the hook to pay the additional $700,000 owed.

Luckily, Tim had talked with his insurance agent about the benefits of a liability umbrella before he added Ben to his auto policy and opted to purchase a $1M umbrella policy. The umbrella policy picked up the remaining $700,000 that was owed, saving Tim and his family from financial ruin.

This is exactly what an umbrella insurance policy is for. It is an extra layer of liability insurance that sits on top of your underlying policies, such as auto or home insurance, and kicks in once their liability limits have been reached.

What’s Covered?

Just like a real umbrella expands to protect the people below it from rain or UV rays, one liability umbrella covers many underlying policies. It can add $1M or more in liability coverage to personal liability claims, auto accidents, boating accidents, rental property exposures, ATV or motorcycle accidents, and more. Just be sure to thoroughly discuss your needs with your agent to ensure your policy covers all needed exposures.

Should I buy umbrella insurance?

So, do you need an umbrella policy? If you’re sued and you don’t have enough liability insurance to cover the cost, your assets could be exposed. If you have assets, you’ve worked hard to acquire, own a dog, have teenage drivers, or own rental property, you should consider an umbrella policy. You might be surprised how affordable a million dollars or more in umbrella coverage is.

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