What is liability insurance?
If you crash into someone’s car or cause some kind of damage to somebody else’s property, then you become liable to compensate them. These situations may arise at any time, whether they happened knowingly or were a complete accident. However, even if it was a mistake you cannot shy away from the payments you’re supposed to make. This is where liability insurance comes into play.
Liability insurance is also known as third-party insurance. It will help cover the expenses you’re liable to pay, granted, it was not illegal and completely an accident.
What is umbrella insurance?
Umbrella insurance is the insurance that helps cover the liabilities that the other primary insurance could not cover. Imagine you have auto insurance for $300,000, and you get into an accident which makes you liable to pay $500,000. You are safe if you have a decent amount saved or are born into generational wealth. However, it becomes a problem when you are not in a financial position to pay up. This is when umbrella insurance comes to your rescue.
How does umbrella insurance work?
The workings of umbrella insurance are quite easy to understand. Your umbrella insurance begins where your liability insurance ends. It will help you cover the expenses for your liabilities when your initial insurance plan cannot cover them.
Here’s a real-life example to help you understand how umbrella insurance works:
When do you need umbrella insurance?
If your net worth is a million dollars then, your umbrella insurance coverage should be for a million dollars. Umbrella insurance may be a waste of money after already having other insurance. You need to understand that you never know when you get into a bad accident or get sued. The person suing you won’t care about how much you can afford to lose but, how much they can extort from you.
You may not need it or you may need it, but the main question is are you willing to take the risk or do you choose to sleep soundly at night?
What does umbrella insurance cover?
1. Property damage
Umbrella insurance can cover the cost of property damage that exceeds the limits of your primary insurance.
2. Bodily injury
It can also provide extra coverage for bodily injury liability, helping you pay for the medical expenses, legal fees, and damages for injuries caused to others.
3. Landlord liability
If someone gets injured on your property and you’re held responsible, umbrella insurance can offer protection.
4. Employment practices Liability insurance
Depending on your umbrella insurance policy type, it may extend to employment-related claims.
5. General liability insurance
It provides you extra protection in addition to the limits of your initial insurance policy.
6. Contracted worker injuries
It can also offer an extra layer of protection beyond worker’s compensation in case of injuries to contracted workers.
7. Court costs
It can provide help regarding court cases, legal fees, and other expenses.
8. Defense costs
It includes legal defense costs which can be significant in a lawsuit.
Invasion of privacy
9. Libel or defamation
In case you are sued for defamation, umbrella insurance provides the financial protection you need.
What does umbrella insurance not cover?
1. Personal cost
Your umbrella insurance won’t cover your cost.
2. Criminal activities
In case of a lawsuit, if you’re proven to be guilty of some criminal or illegal activity, umbrella insurance won’t provide you any sort of financial protection.
1. Do I need umbrella insurance?
Umbrella insurance will provide you with a sense of security in case your primary insurance does not cover your liability So, yes you should have an umbrella insurance plan.
2. Will I get my money back if I do not use my plan time till the date of expiration?
Like any other insurance policy, you do not get your money back in case you do not require it till the date of expiration. However if you fo need it, it will provide you a coverage of at least a million(depending on your policy).
3. What does umbrella insurance cover?
It covers your liability for something. For example, if you damage someone else’s property and your primary insurance doesn’t cover it, that is when your insurance comes in handy.
4. Will umbrella insurance cover my medical bills?
No, it unfortunately won’t cover your medical expenses. It does not cover personal liabilities.
5. Is umbrella insurance expensive?
Umbrella insurance is comparatively cheap considering the benefits.
Umbrella insurance protects you and your assets. You can look at it like a good investment because it is. You are protecting yourself or any future liabilities that could cause some real damage.
It is not only about acquiring assets but also protecting them to create wealth.