How Does Umbrella Insurance Work?
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What is Umbrella Insurance?
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Umbrella insurance is an insurance policy which protects the policy holder against damages to, or liabilities from, multiple pieces of property rather than one. Typical auto insurance insures a single car and homeowners insurance insures a single home. Umbrella insurance provides an additional layer of protecting which insures these assets, of which one of the primary goals is protecting against liability.
For instance, if you happened to injure someone with your car who was uninsured, and he was awarded a settlement against you that exceeded your auto insurance policy, umbrella insurance could step in and pay for the liability so you wouldn't have to find the money elsewhere, perhaps resulting in garnished wages or the loss of a home.
Things Often Covered by Umbrella Insurance
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An umbrella policy is chiefly designed to protect against liability and acts which might damage a person's ability to do business and make money. Since normal insurance policies generally cover property up to its maximum value in terms of damage, umbrella policies usually extend the liability portion of auto, home and boat insurance. It can also cover damage from things like libel and slander, or other circumstances that could defame a person's character like a false arrest. Essentially, umbrella coverage is meant to plug the holes between normal insurance policies, and increase liability coverage so that someone looking to bilk money out the policy holder through a lawsuit will not cause the policy holder to go bankrupt.
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Who Benefits Most from Umbrella Insurance?
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Umbrella insurance is something many people have not ever heard about, much less understand how it works, or why they might need it. Whether to buy umbrella insurance, to some degree, is a matter of preference--a decision of how much risk one can afford to live with, and how much they have to lose in the event that they are sued or unable to do business as they are currently. Generally speaking, those with more money, and more assets stand to benefit more from an umbrella insurance policy. Rich people frequently become targets of lawsuits and set ups because they know there is a large potential to get paid off or get a settlement. If a poor person strikes a pedestrian with a car, suing them does little good for the injured person.
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