Chances are you won't get into a car accident or have an injury at your home that ends up with a lawsuit larger than what your liability insurance company is willing to pay. But if something like that were to happen, a personal umbrella liability insurance policy could prevent you from being wiped out financially. Umbrella insurance policies -- like the rainy day device -- provide additional coverage over and above your existing automobile or homeowner's insurance policy if the basic policy is ever tapped out. The wealthy have always used umbrella policies to protect their assets, but not-so-wealthy people could gain some peace of mind from owning them, too.
Because personal umbrella liability insurance policies go into effect after the primary coverage is exhausted, companies that write umbrella policies usually require that certain limits are met before they will sell you the extra coverage. You usually must have at least $250,000 in liability insurance on an automobile policy and at least $300,000 in liability insurance coverage on a homeowner'ss policy before an umbrella insurance carrier will approve an umbrella policy for $1 million in additional coverage.
An umbrella liability insurance policy will allow you to live the lifestyle you choose knowing that your personal assets are not at risk if there is an injury or accident with your car or on your property. The coverage is designed to protect you against the most expensive claims -- those that produce seious long-term injuries that may require years of expensive care, along with pain and suffering for the victim. For example, people who own a home or condominium with a pool or trampoline should consider an umbrella policy. Even if you don't have either of those accessories, a guest could slip and fall at your house or a contractor could get injured while working there. Also, homeowners with dogs or teenage drivers could find themselves thankful for having an umbrella policy one day. Parents can inherit a liability caused by a teenaged driver, and even the bites of "nice" dogs can produce grievous injuries.
The coverage you get from an umbrella policy could be worth much more than its price. Personal umbrella liability insurance is sold in $1 million increments and costs between $150 and $300 a year for the first $1 million in additional coverage, according to the Insurance Information Institute. The next $1 million usually costs about $75 more a year. Then you'll pay about $50 a year more for each $1 million after that.
Insurance agents who write auto and homeowner's policies have binding authority, which means they can authorize the policy into effect after they receive a completed application and the policy payment. But umbrella policies work differently. The completed application for an umbrella policy must be submitted to the insurance company for approval by its underwriters. The amount of money at stake is so high that insurance companies want to be extra careful of the risk they are taking. Some umbrella insurance companies may choose to turn down applications from people who pose a higher-than-average risk for liability claims, such as public figures.
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