What is an umbrella policy and why is it important?

HomeWhat is an umbrella policy and why is it important?

What is an umbrella policy and why is it important?

Auto insurance plays a vital role in every motorist's life, providing many important safeguards against a variety of mishaps. It provides a wide range of coverage including financial relief from vehicle damage or physical injury due to an accident and even the full value of an individual's car if it is stolen or totaled. In some scenarios, however, basic auto insurance is not enough, and more comprehensive coverage known as an umbrella policy is necessary.

What is an Umbrella Policy?

Liability auto insurance is an important coverage option for all individuals, providing coverage against vehicle damages and physical injury inflicted by the insured individual. However, it does have its limitations and will not cover all expenses beyond a certain amount specified in the policy. An umbrella auto insurance policy is an extra layer of liability insurance that will go beyond the basic liability coverage offered in most auto insurance policies. All motorists who decide they need an umbrella policy must first have standard liability insurance before they can purchase an umbrella policy, with the umbrella policy kicking in once the standard liability coverage is used up.

Why is an Umbrella Policy Important?

An umbrella auto insurance policy is often the only way for many individuals to be able to pay for major injuries that they cause in an accident which often can exceed traditional liability coverage. The high cost of health care combined with the exorbitant legal and litigation fees so prevalent in the world today far surpasses the ability of most at-fault accident motorists to pay for these expenses and can financially ruin their lives. For example, most liability insurance policies commonly have a limit of $500,000 paid by the insurance company. If an individual is responsible for an accident where another motorist was completely disabled and can no longer work, the damages could easily end up being several million dollars. If the financial settlement for physical and vehicle damage along with legal fees is $2,000,000, the at-fault driver without an umbrella policy will be responsible for a staggering $1,500,000 expense.

Who needs an Umbrella Insurance Policy?

An umbrella auto insurance policy is beneficial to all individuals seeking the maximum financial safety net possible from an accident. It is also beneficial to affluent individuals who may find themselves a greater target for larger lawsuits. Even if an affluent individual is falsely sued and found innocent, the massive legal bills that can compile over long periods of extended litigation can surpass the $500,000 limit under traditional liability coverage. Both large and small transportation companies are also very vulnerable to significant lawsuits and should always have an active umbrella insurance policy in place.

What does Umbrella Insurance Cover?

Umbrella auto insurance will cover all medical expenses and vehicle damage of a victim arising from the insured at-fault driver, as well as all associated legal fees. Umbrella insurance in general will also cover libel lawsuits arising from the damage of an individual's reputation, a rapidly growing occurrence with the expansion of social media. Although not usually thought of as relating to auto insurance, it is still a reality, particularly for transportation companies.