All of us have heard the term "policy limits" when buying auto insurance or homeowners insurance, but most likely never gave it much thought. Simply put policy limits are when your insurance stops paying and you are liable for losses past the policy limits.
Say you have an auto insurance policy with $100 thousand liability insurance per person and $300,000 per accident. This means that if you injure an individual in an auto wreck and are sued successfully for $250 thousand you are on the hook for additional $150 thousand dollars.
The way to gain protection above your policy limits is to purchase an excess liability policy. These policies are often called "umbrella policies."
Buying Umbrella Insurance
Before you go purchasing an umbrella policy you must check on your auto policy and homeowners/renters/condo insurance policy. When you buy an umbrella policy you must have certain minimum liability coverage in those basic policies. Usually for auto insurance it is $100/$300 thousand.
Generally the least amount of coverage you can buy when purchasing an umbrella policy is $1 million, but many folks opt to extend their liability coverage for personal damage and injury to as high as $5 million. They do this because the additional coverage is very affordable.
Things to Do When Purchasing an Umbrella Policy
- Make sure the policy covers the cost of legal defense or negotiations in the event you are sued
- Exposure to slander and liable claims is greater in the age of the Internet, make sure this is a covered risk
- Before you buy get a sample policy and look over all the issues that are covered, even better, get two or three sample policies in order to compare coverage.
- Once you have decided on all the coverage you want get quotes from three insurance companies, you can do this online or through your broker if you have one.
Umbrella policies are not for the rich only. An accident or incident can endanger all your assets, including your home, your savings and if you are a business owner even your business. Coverage expense is very affordable and the peace of mind you have knowing you have protected yourself is well worth the cost.
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