Umbrella insurance acts as a liability safety net for your other policies: When your auto and home liability limits are depleted, your umbrella kicks in to back you up. Umbrella insurance provides additional liability coverage for you and your family in the event of an at-fault accident or if someone sues you. This can make a difference if you are facing a lawsuit and are at risk of filing for bankruptcy and exposing your assets. The costs associated with a lawsuit can not only drain your assets, but also leave you paying off the expenses for years or even decades.
But Umbrella coverage does have its limits; you cannot expect it to cover any exceptions on your other policies.
- Umbrella insurance will not cover anything that isn't already covered. For example, your home insurance doesn’t cover flooding, so neither will your umbrella policy. Flood coverage is only available through the government. You will also have to make sure your underlying policy liability limits meet the requirements of your Umbrella policy to avoid any gaps in coverage; any gaps would end up coming out of your pocket before the Umbrella policy kicks in.
- Umbrella policies are not designed to cover physical damages. That is, if you go from driving a compact car to an expensive car and it is totaled before you can update your auto insurance policy, your umbrella policy won’t make up the price difference. Umbrella insurance is mainly concerned with excess liability. In terms of protecting your actual property, it will only do so to cover liability and legal costs so that your home and car cannot be claimed to pay the costs.
Fortunately, your umbrella plan doesn't have to cover anything except excess liability. Your home insurance will cover your home, and your car insurance will cover your car. However, when it comes to a loss, the costs can spin out of control in liability damages and legal proceedings. The cost of a lawsuit may quickly balloon to a price that the average person wouldn't be able to cover in several lifetimes. Umbrella insurance exists to bring you and your family peace of mind.
Also Read: Umbrella Insurance When You Have a lot to Lose