Umbrella insurance is basically extended liability insurance. It is attached to other policies, personal or commercial, to extend their existing coverage. Umbrella coverage usually goes up in increments of $1 million, with very reasonable premiums.
The name of these policies illustrates their benefits quite well. They work like an umbrella to provide extra protection. If an auto policy only covers up to $500,000 in bodily injury claims and there is a claim for $700,000, the policy holder would normally have to pay the extra $200,000. If there is an umbrella policy in place, however, it would provide extra cover and the insurance company would pay the extra $200,000.
Certain umbrella policies will not only extend current coverage but can fill in the gaps in coverage existing in other policies. Again, this is like an umbrella covering other policies. For example, many policies have limitations on where the claim can take place; it may need to occur in the same state to be covered. An umbrella policy can alter that restriction to cover claims from anywhere in the world. Not all umbrella policies fill gaps in coverage. Sometimes insurance that only extends coverage is called excess insurance, and umbrella policies are those that also fill gaps in coverage. In some areas both types are simply called umbrella policies. It is important to ask an agent what a specific umbrella policy can do.
The benefits of umbrella policies are vast. They extend coverage and can fill gaps in coverage. This extra protection helps tremendously if the policy holder is sued for a large amount of money. It is helpful to know exactly what each policy covers. It may even cover lawsuits not naturally associated with insurance, such as slander, mental anguish and false arrest. All of these benefits come at very manageable prices. Umbrella insurance is useful to anyone who fears their current insurance will not provide them with enough coverage.