What is an umbrella policy? Should I buy one?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: May 10, 2010

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Insurance Question from Bronx, NY

Asked on 05/10/2010

What is an umbrella policy? Should I buy one? NULL

Answer given on May 18, 2010

An umbrella policy offers additional liability protection "on top of" what is already offered by the underlying home and/or auto insurance policies.  So, if your auto and home policies offer, $300,000 in liability protection, for example, you can either increase the liability coverage on either or both policies (to $500,000, for example), or you can purchase an umbrella policy which increases the liability protection.

What many people don’t realize is that an umbrella policy pays the difference between the amount of coverage on the underlying policy, and the limit listed on the declarations page of the umbrella policy.  This means that a $1,000,000 umbrella policy, when bundled with a $300,000 auto policy, will pay a maximum of $700,000.  The auto policy will have to pay the full $300,000 before the umbrella policy kicks in.  This means that if your auto policy won’t pay the claim, because the event is not a covered event, then the umbrella policy won’t either.

Another thing to consider is that if you purchase your umbrella policy from a different company than the one you have your auto (or home) insurance with, if the umbrella policy would normally cover a particular situation, but your auto (or home) policy specifically excludes coverage for that situation, then the umbrella policy will not cover that situation. 

An umbrella policy is a good idea if you have significant assets to protect, or if you own a home.

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