Umbrella insurance protects your assets if you happen to find yourself underinsured.
The purpose of being insured is to protect you and your assets against as many potential risks as possible. While most P&C policies include liability coverage, you may find that your policy limits are insufficient to protect all of your assets. Unfortunately, accidents happen when you least expect them, but an umbrella insurance policy can keep you from being underinsured when you can least afford it.
What is umbrella insurance?
Umbrella insurance works in conjunction with your auto and/or homeowners insurance policy to provide additional liability coverage if you happen to exceed the limit of the underlying policy. Say that you have an auto policy with liability limits of $250,000, you injure someone in an accident where you are considered at fault, and the other person’s injuries total $400,000. If your coverage maxed out at $250K, you would be on the hook for an additional $150,000 worth of injuries; which could be financially disastrous to you.
Since umbrella insurance policies provide coverage incrementally from $1mil-$5mil, in the above example, you would not have to pay the extra $150,000 out of pocket. Considering that umbrella policies are fairly inexpensive, it’s easy to see the value of adding this coverage to protect your assets from a lawsuit resulting from being underinsured after an accident.
While it would be impossible to fully protect yourself from all possible risks, an umbrella insurance policy helps to mitigate some of those risks and makes it less likely that you could lose your home, or other high dollar assets, because of a lawsuit.