We encourage our clients to purchase as much car insurance as they can reasonably afford. In general, the more coverage you have available, the more likely it is that you will receive all of the compensation you need if you are involved in a serious accident. One way to give yourself extra protection is to purchase an umbrella or excess policy.
How Does an Umbrella Policy Work?
While an umbrella policy will cover all of the policies you have with that insurance company—including homeowners, renters, boat, and auto—we will focus on auto coverage for our purposes. With an umbrella policy, if the expenses related to a car crash exceed coverage, you may pull from the umbrella coverage. This applies particularly in cases of your liability. For example, if you are found to be 100 percent at fault in a car accident and your $25,000 bodily injury coverage is not enough to cover the injured party’s expenses, your umbrella policy will make up the difference. This protects your personal assets in the event of a lawsuit against you for additional damages.
When you purchase an umbrella policy, you will want to make sure it provides uninsured or underinsured motorist coverage. This way, if the other driver is at fault and doesn’t have enough insurance to cover your expenses, you can draw on your own umbrella policy. Likewise, if the other driver has an umbrella policy, a claim should be made against it for your damages.
An umbrella policy in the amount of $1 million is usually available for a few hundred dollars extra per year, making it well worth the money considering the potential cost of a catastrophic car accident. The policy will also apply to your homeowner’s policy in the event of a natural disaster or fire.