Unfortunately, accidents happen. And when they do, the victim usually tries to blame someone else. And if there’s a lot of money involved the liability limits under your homeowners and auto policies may be exhausted.
Under the U.S. system of tort liability, courts can hold injurers liable for many different types of torts, such as bodily injury, trespass and “personal injuries,” such as invasion of privacy, slander, libel or damage to reputation. Your homeowners policy covers both the costs of your legal defense and any court awards for this type of claim, while your auto policy covers you for liability resulting from accidents you’re involved in. But the typical homeowners policy provides from $10,000 to $500,000 in liability coverage, while your auto policy might provide $500,000. Enter the umbrella insurance policy.
If you are found liable for causing serious injury, the sky-high cost of medical treatment and other claims, such as negligence, could quickly exhaust the coverage limits on these policies. Once your policy pays its limits, any remaining liability costs become your responsibility. That’s where umbrella coverage kicks in.
But there are more benefits to umbrella insurance than just adding additional limits to your underlying auto, homeowners and other policies. Umbrella policies also drop down to cover you for things that your other policies may not cover, such as false arrest, libel, slander and invasion of privacy. For example, your homeowners policy will cover you if a guest sues you. But if a live-in resident, such as a nanny or even a non-immediate family member, sues you, that claim will may be denied by your homeowners insurer. Your umbrella policy, however, will likely cover the claim.
The typical umbrella liability policy can provide an extra $1-2 million in additional liability protection for only hundreds of dollars a year. You can buy policies with higher limits if needed; generally, the more assets you have to protect, the more coverage you need.