There are many different choices when shopping for insurance. One of these is umbrella insurance. Although the term many sound familiar, most people aren’t quite clear on what it actually is. To help, below is an explanation of what this kind of insurance is, how it works and who it can benefit.
What Is Umbrella Insurance?
Umbrella policies work as a kind of liability insurance. Liability insurance protects the policyholder from being held liable for damage done to others. This kind of coverage is common among car, home and business insurance policies. However, there is usually a maximum amount the insurance company will pay. To cover more than that, an umbrella policy is required. Umbrella policies pay for amounts in excess of what other liability policies will pay.
How It Works
Typically, umbrella policies cover extremely high amounts of money. They usually come in increments of $1 million. Surprisingly, however, the premiums paid by individuals and businesses are usually lower than what is paid for regular liability insurance. The reason why is because the regular home, auto or business liability insurance must be maxed out first. The chances of this happening are quite low. Since that is the case, the same insurance company has a good incentive to offer umbrella coverage at a discount to a policyholder.
Who Umbrella Policies Benefit
Umbrella policies can benefit individuals that find their selves in situations in which the liability for costs incurred to others is especially high. Certain individuals are at higher risk for finding their selves in these kinds of situations than others. For example, if you own a rather large recreational vehicle, there is a higher chance you may be involved in a multiple car accident. If this is the case, the regular auto liability policy may be exhausted by the other drivers if an accident were to occur.
While homeowners may seem less at risk, there is also the possibility of an injury occurring on the property or due to things that were on that property such as a falling tree. This can result in very expensive lawsuits that exhaust regular homeowner liability insurance. An umbrella policy will be needed to make up the difference.