If you have an umbrella insurance policy, congratulations, you are one of those smart people who care about proper coverage for their property.
If you do not, I am recommending you getting it.
Everyone needs to have an umbrella policy to protect their assets and future income.
It is called "umbrella policy" because it provides additional liability coverage above existing auto, homeowner's, renter's, motorcycle, boat and other insurance policies.
So you have an umbrella policy or thinking of getting one, but not sure how such coverage works? Umbrella policy can provide from $1 million up to $5 million coverage.
Usually an additional liability coverage is written with an underlying auto policy.
Depending on the insurance company, the limits on the auto policy can start as low as $250,000 and go up to $500,000.
For an example, let's say Chris has an auto coverage with $100,000 liability limit.
She causes a big accident and is sued.
Luckily, she has umbrella policy with $1 million coverage.
The court orders her to pay $500,000 in losses.
When the auto liability limit is exhausted, the umbrella coverage kicks in to pay for the rest.
When altering auto policy liability limits, keep in mind that you should not go lower than the required limit to use an additional liability coverage.
If you have an auto policy limit up to $250,000 and you lower the limit to $200,000, one day, when you want to use umbrella coverage, you will end up with a $50,000 gap in your coverage.
Obviously, you will be the one to pay that gap out of your own pocket to reach that $250,000 limit.
After the limit is reached and gap is closed, umbrella policy will go into effect.
If you have an additional liability coverage with an underlying personal auto policy, and you don't have the auto policy anymore, you still can keep your umbrella policy by purchasing nonowner auto insurance policy with 500 CSL limits.
You also can purchase a standalone excess liability policy that does not require an underlying policy.
I recommend contacting your agent to decide which policy will be best for you.
Even an umbrella policy has exclusions, such as liability covered under workers' compensation, acts that made intentionally by you or your family members living in your house, liability arising out of business pursuits, or punitive damages against you.
When loss is excluded under an underlying policy and additional liability coverage, there is no coverage at all, and you are personally responsible to pay for the damage.