Delaney Simchuk, Car Insurance Writer
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Umbrella insurance works by extending the liability limits on your auto or home insurance policy beyond the maximum limits insurance companies offer. Umbrella insurance protects you when you are facing serious financial loss and covers a broader range of situations than just auto or home insurance alone.
How Umbrella Insurance Works
- Extends your existing coverage. Umbrella insurance extends your existing liability insurance coverage so you have higher limits for both bodily injury liability and property damage liability. You are only eligible for an umbrella insurance policy if you have an underlying insurance policy beforehand.
- Covers drivers with a high net worth. Umbrella insurance policy limits start at $1 million and can go as high as $10 million.
- Protects you from potential lawsuits. When you are at fault for a serious car accident, your home, savings, and earnings are all at risk of being seized in a lawsuit against you. An umbrella insurance policy helps prevent lawsuits by covering the potentially expensive cost of repairs or medical expenses should you be held responsible for an accident or another liability claim.
- Covers more than just liability. Umbrella insurance covers a wide range of situations in addition to bodily injuries and property damage that you might be liable for. It can cover claims such as libel, slander, or defamation of character, for instance, along with your legal defense for covered claims, liabilities outside of the United States, lost income or false arrest, detention or imprisonment.
- Kicks in when your regular auto or home insurance limits are exhausted. For example, if you are at fault for a car accident, you will get coverage first from your auto insurance, and then your umbrella insurance policy will cover the rest up to your policy limits, minus any deductible.
To learn more, check out WalletHub’s guide to umbrella insurance.
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