Umbrella Insurance

Definition

Umbrella insurance is a policy that extends your third-party liability coverage beyond the limits that are in your current home and car insurance policies.

If you are ever sued, you will use your home or auto liability coverage to pay the costs associated with the lawsuit. However, if your liability claim goes beyond the limit in your standard home or auto insurance policy you will have to pay the remaining balance unless you have umbrella insurance. 

If you have umbrella insurance your coverage will take over once your standard liability coverages run out. This means you will not have to use your savings to pay the remainder of the lawsuit.

Umbrella Insurance kept simple

If you ever find yourself in a situation where you are being sued then either your house or auto insurance liability coverage will be used to pay the amount you owe. However, if the amount you are being sued for extends past your liability coverage then you will have to pay out of pocket for the remainder that is owed. Unless you have umbrella insurance. If you have umbrella insurance then it will pay the remainder of what is owed.

How does Umbrella Insurance apply to you

You are found at fault for a car accident and are sued for two million dollars by the other party. Your standard auto insurance liability insurance only covers a million dollars. You are responsible to pay the other million dollars either through savings or bankruptcy. However, if you have umbrella insurance it will cover the other million dollars owed without you having to pay out of pocket.

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