Most of us look at the bottom line – how much we’re going to pay in monthly premiums. This is understandable, auto insurance is one of many bills we have to pay, and we’d rather use that money for things that we enjoy.

Few people take the time to consider how important auto insurance really is. Are you properly covered when you need it? We don’t want to think about accidents, theft, and all those unpleasant things. Yet, when that day arrives, we want to believe that we are adequately insured.

Basic auto insurance may be fine for most minor accidents. There are limits to how much any insurance policy will pay. If you’re not fully covered, you will end up having to pay the difference out of your own pocket.

Umbrella insurance can fill the gap when your regular auto insurance does not have you fully covered. Though, umbrella insurance provides more than simply additional auto insurance cover. We’re going to look at how umbrella insurance works and ask that all-important question: do you need umbrella insurance?

What is Umbrella Insurance?

In a nutshell, umbrella insurance is a second layer of protection against unforeseen expenses when you’re involved in an accident or incur a loss that your regular insurance policy does not cover. It is similar to excess liability insurance but not identical.

Umbrella insurance generally covers injury and property damage, as well as legal costs.

How does Umbrella insurance work?

If you’re involved in an accident and the occupant of the other vehicle is seriously injured, your basic auto insurance will provide for bodily injury liability. This means that the medical treatment for the driver and passengers of the other vehicle will be paid for by your insurance. Your insurance may also pay for claims for loss of income if the other party cannot work for an extended period following the accident.

All basic auto insurance policies have limitations on how much they will pay for liability claims. If a heart surgeon cannot work for six months following an accident, the liability could end up being several hundred thousand dollars. Your regular auto insurance probably does not provide this type of cover.

You may end up being sued for the additional damages that your insurance does not cover. Umbrella insurance will pay for legal costs and cover the shortfall between what your auto insurance covers, and the actual damages being claimed.

What is covered by umbrella insurance:

  • Injury and funeral costs for other parties.
  • Damage to property other than your own.
  • Legal defense costs.
  • Property damage or injury incurred by tenants.

Do you need umbrella insurance?

Umbrella insurance is not limited to only auto insurance. The extra cost of umbrella insurance will be most beneficial for people who have additional risks, like legal costs or landlords.

Other instances where umbrella insurance can be of benefit:

  • If you own or property or significant assets, then umbrella insurance can provide much peace of mind.
  • If your assets might provide an increased risk of injury or damage to others, like a swimming pool, gym equipment, or guns.
  • If you coach sports or are involved in physical activities where others may be injured.
  • If you’re a writer, journalist, or critic who may face slander or defamation lawsuits.
  • Entertain frequently at your home.