What is an Umbrella Policy?

When looking at minimizing your risk, an Umbrella policy may play a critical role.  Here is a good explination of how an Umbrella policy works from eHow.com:

Leanne's note:   Remeber, if you only have minimum limits on your automobile policy may not cover all the damages of a serious or fatal accident.  In this case the other party may sue you to recover more compensation putting your home, 401K and all other assets at risk.

Umbrella insurance provides reassurance and protection against lawsuits and claims that exceed the limits of your other insurance policies.

1. Definition

   • An umbrella insurance policy covers liability expenses that go beyond the limits of your existing homeowners, automotive, renters, watercraft, motorcycle and/or other personal insurance policies.

   Function

   • Your homeowners, automotive, and other personal insurance policies have limits---a maximum they will pay on a single incident. If you are sued or a claim a claim is settled against you for more than the maximum the insurance company allows, you are personally liable for the rest. An umbrella policy covers "the rest" of your personal liability up to the policy's limits.

   Features

   • An umbrella policy is only used if you exceed the liability limits of coverage under your other personal insurance policies, so the premiums are usually very affordable.

   Benefits

   • An umbrella insurance policy helps protect your assets from being seized or attached in the event you are held liable for paying a claim or lawsuit that exceeds the limits of your other insurance policies; a policy like this can also prevent a judgment against you that can eventually lead to a lien on your house or business.

   Limits

   • Umbrella insurance policies typically offer coverage limits starting at $1 million; some policy limits can be up to $5 million.

   Tip

   • If you purchase your umbrella insurance policy from the same insurance provider you use for your homeowners, automotive, renters or other personal insurance policies, you will usually get a better rate than if you purchase it from another company.