How Does an Umbrella Policy Work?

Umbrella insurance is a type of liability coverage often misunderstood by many but incredibly important to understand in our current, highly litigious society. Consider this startling fact. It's estimated that there are more than 15 million lawsuits filed in the U.S. every year. This works out to an average of approximately 41,000 lawsuits per day, or about one lawsuit every two seconds.

Why So Many Suits?

More than half of the lawsuits filed each year in America are as the result of a liability claim stemming from damages related to a vehicle accident. And while every driver here in North Carolina is required by law to be covered by a minimum amount of liability insurance, these limits are woefully below the amounts typically awarded as judgments in a liability lawsuit. If your automobile liability insurance merely covers the minimum required amounts, any vehicle accident for which you're held responsible will only pay out $30,000 per person in bodily injury damages, for a total of $60,000 for all persons injured in a single accident.

If you've taken the proactive step of increasing your automobile liability coverage to ten times the legally required amounts, $300,000 and $600,000, even these may be inadequate amounts if you cause a serious accident where multiple victims suffer significant injuries.

Other Liability Concerns

         

The same may be said of the liability coverage that's part of your homeowner's or renter's insurance policy. It, too, may be woefully inadequate if someone visiting your home trips on your front steps, falls and breaks their neck, or someone falls in and drowns in your backyard swimming pool. Liability judgments can be in the millions, and no ordinary auto or homeowner's insurance will ever cover this expense. That's where an umbrella policy comes in.

An Umbrella Policy Can Save Your Financial Future

An umbrella policy works in conjunction with your basic auto, homeowners or renters insurance, taking up the liability payments where your basic insurance leaves off. It's usually written for a minimum of one million dollars, but even this large amount of coverage is affordable – typically costing somewhere between $150-$200 per year. Each successive $1 million in coverage costs even less.

If you're held liable for an injury in your home, in your car, on your motorcycle, in your RV, watercraft, etc., an umbrella policy can keep you from bankruptcy. It's a small price to pay for huge potential benefits.