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Umbrella Coverage: Protection for That Rainy Day

Written by Michele Wilmonen. Posted in Research Last Updated: 01/22/2012

You grab an umbrella to protect you during a rain storm, so don’t forget your umbrella coverage to protect you during a car accident.

umbrella coverage

Rich or poor, umbrella coverage is there to protect your finances.

You buy insurance to protect yourself if you ever have an accident; that and it’s required. But, required or not, it is there to protect you financially. With the rising cost of medical bills and court settlements, it is prudent to purchase a high level of insurance.

This may mean purchasing more than what is offered under a normal car insurance policy.

What Is Umbrella Coverage?

Umbrella coverage is an extension of your car insurance policy. It provides you with liability coverage up to limits that are not available on a normal car insurance policy. We are talking limits of 1 to 5 million dollars.

Umbrella coverage is for liability coverage only. It does not cover any damages done to your car. It also does not cover any medical bills or other expenses that you or any of your passengers might have after an accident.

It also only kicks in after you have exhausted the coverage from your regular car insurance policy. In other words, your umbrella coverage is just like an insurance policy for your insurance policy. You will only use it if your primary insurance policy isn’t enough to cover all of the monetary damages from the accident you are found at-fault for.

Who Needs Umbrella Coverage?

Umbrella coverage is for anyone that wants that extra protection from anything that can go wrong in a car accident claim. Especially those that have a lot to lose; such as drivers that have property, investments, and a lot of money put away in bank accounts. These types of assets can be at risk of being lost in the event that you cause a serious accident where the medical bills and the settlement amount is more than what you have in insurance coverage. If the claim ends up in court, you could lose even more.

Even if you don’t have these assets, you will still owe the money to the insurance company or the other party if you don’t have enough liability coverage. You could be paying on this for the rest of your life if the amount is substantial. If you had umbrella coverage though, it would take care of the expense for you.

How Do You Buy Umbrella Coverage?

Umbrella coverage is actually sold as a completely separate policy that is attached to your car insurance policy. You need to purchase umbrella coverage from the same insurance company or agency that currently holds your car insurance policy.

To qualify for an umbrella policy, your car insurance policy limits must be at the maximum allowed limits. As an example, if the most your insurance company sells in liability coverage is 250/500/250; that is the amount of liability insurance you must purchase before you could buy umbrella coverage.

It’s not the insurance company trying to cheat you out of your money, the reasoning is behind it is rather simple. If you only have liability coverage for 25/50/25, why would they want to sell you additional liability coverage of 1-5 million dollars? There is a huge gap in what your normal car insurance policy would cover up to and when your umbrella coverage would kick in.

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Michele Wilmonen

Michele's first introduction to insurance was working for a major insurance company as a file clerk and a mailroom supervisor in a regional office. She learned insurance directly from underwriters and claims adjusters from questions and also watching them do their job. Since then, she's earned a number of insurance certifications from the Insurance Institute of America and also a Bachelor’s degree from the University of Idaho. She blogs at Car Insurance Guidebook.

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