How Does an Umbrella Insurance Policy Work?

An umbrella insurance policy is a type of liability insurance policy that covers unexpected liability in excess of what is provided by liability coverage that comes with home or auto insurance. While auto and homeowners insurance policies come with liability coverage, in some instances your liability may be greater than what these policies may cover. If you have an umbrella policy, it can cover whatever liability not covered by your auto or home policy up to the maximum allowed for your particular umbrella policy.

Finding a Good Policy

Most insurance companies offer a personal umbrella policy and the average yearly premium is a few hundred dollars for a $1 million policy. The best place to start when shopping for a policy is to contact your insurance agent if you have one. She will be able to shop around and provide you with the best deal. You could also contact the company that insures your car and or home. You may be able to take advantage of discounts for bundling services. Also it may be easier when you need to make a claim since you will be dealing with one insurance company and not several.

After checking with your current insurance company and if you do not have an agent, it is still important to shop around online and see what is out there to make sure you are getting a good price. Also check if you can get the same coverage or even better by simply increasing the liability coverage on your car or home.

A personal umbrella policy comes in handy in the event of a lawsuit or liability judgment. For example, imagine someone visits your house and falls and injures herself, or your pet damages your neighbors' property or injures their child. In such cases the umbrella policy claim can be made to cover such judgment if the liability coverage that comes with your home owner's insurance policy does not cover it, or the limits have been reached. Claims can also be made for legal and defense fees.

An umbrella policy will also cover liability coverage when you are sued for slander, libel, false arrest, malicious prosecution or other personal liability situations.

Most personal umbrella policies do not cover punitive damages, intentional actions or liability incurred in connection with your business activities.