How Do Umbrella Policies Work?
Those who are looking for insurance might have come across something called an umbrella policy. An umbrella policy is a type of insurance that acts as a supplement to someone’s other liability policies. Some of the most common liability policies include car, renters, and home insurance. An umbrella policy has been designed to cover higher liability limits. In essence, this policy covers claims that go beyond typical home and auto insurance coverage.
The purpose of an umbrella policy is to guard assets in the event of a catastrophic event. For example, if another party files a lawsuit due to bodily images sustained on someone’s property, an umbrella policy will cover any damages from the lawsuit up to the limit of the policy. There are a few important points regarding umbrella policies that everyone should note.
What Does Umbrella Insurance Cover?
An umbrella policy is designed to provide excess liability coverage above the limits of a typical insurance policy. An umbrella policy is also a broader form of insurance that can cover other claims such as legal feels, slander, and other costs that might not be associated with a typical insurance policy. At the same time, it is important for everyone to read their umbrella policies carefully to make sure they know what this type of insurance does and does not cover.
How Does an Umbrella Policy Work?
An umbrella policy will be triggered if someone is found liable for damages. In addition, most umbrella policies will also be triggered in the event that someone is sued and needs to pay for their legal defense. Even if the ultimate outcome of the lawsuit is that the policyholder is not found responsible, an umbrella policy will cover legal costs.
An umbrella policy only provides benefits once the basic limits of someone’s liability have been exhausted or if the claim is not covered under basic liability but is covered by the umbrella policy.
For the umbrella policy to be triggered, the claim must be made against the policyholder by another party that has been wronged in some way. Then, the insurance company will pay the cost of the settlement up to the limits of the policy. If the settlement exceeds the coverage of the umbrella policy, the policyholder is responsible for paying the remaining amount out of pocket.
Why Is an Umbrella Policy Important?
An umbrella policy has been designed to protect someone’s assets against liability claims. Cars, houses, investment accounts, and even retirement accounts are all considered important assets. If someone is sued for a large amount and they do not have enough liability insurance to cover the damages stemming from the settlement, all of these assets could be at risk. Therefore, an umbrella policy is usually purchased to protect the policyholder against financial ruin that could be the result of an unforeseen accident.