Umbrella insurance takes over where your auto or homeowners’ policy leaves off, giving you coverage even if your other policies’ limits are exhausted. This is especially critical in the case of a massive lawsuit or an unforeseen disaster, such as a serious auto accident where you are at fault and multiple people were injured.
Umbrella insurance coverage is a little difficult to understand without a hypothetical example. Let’s say you have an auto insurance policy that covers your property damage liability up to $100,000. While driving late at night, you fall asleep at the wheel and drive directly into someone’s living room, causing damages that total at $300,000.
Without the umbrella insurance policy, your insurance would only cover $100,000, leaving you personally responsible for $200,000 worth of property damage. That amount of debt is potentially ruinous, and could have dire consequences for the remainder of your life.
However, if your umbrella policy provides sufficient coverage, it will take care of that $200,000 for you. Your auto insurance policy will cover the first $100,000, and the remaining amount of money will be covered by the umbrella policy.
Why not simply have an auto insurance policy with a higher coverage? Frankly, it’s not cost-effective. Umbrella coverage is there for disasters of a scale we all hope we’ll never encounter – but if they do occur, we want to know we’ll be able to pay for the damages and continue on with our lives.
Umbrella coverage can protect against bodily injury liability and property damage liability as well as slander, libel, malicious prosecution, shock and mental anguish, and false arrest, detention, or imprisonment, among other personal liability situations.