UMBRELLA INSURANCE

What Does It Cover, & What Will It Cost You?

Just as the name suggests, umbrella car insurance can provide an extra “umbrella” of coverage if a lawsuit
brought against you in a car accident exceeds your car insurance liability limits.

To better understand umbrella insurance, it helps to provide an example. If you cause a car accident and are sued by the other party for $750,000 in damages,you may soon find that your insurance policy only covers $500,000 worth damages. This leaves $250,000 left on your shoulders as the responsible party.

The good news is that if you have umbrella insurance, this extra $250,000 will be covered by your insurance policy

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Although it may seem unlikely that you will ever be sued in an accident, it is distinct possibility in today’s extremely litigious society.
A run-of-the-mill accident could quickly turn into a nightmare if you are sued and left to pay a quarter of a million dollars in damages.

A personal umbrella insurance policy is often referred to as a PUP. The average driver can benefit greatly from a PUP to provide an umbrella of extra coverage when regular car insurance runs out.

In a nutshell, a personal umbrella policy will

Offer extra liability coverage above car insurance limits; insurance will be available when an auto policy has been maxed out.

Offer extra coverage for additional types of liability claims, such as libel, slander, false arrest, etc.

In the event of a lawsuit after a car accident, an umbrella policy can offer extra coverage of $1 million or more. For covered claims, your auto insurance liability coverage also typically covers your defense expenses, which can often total in the tens or hundreds of thousands of dollars. As outlined above, umbrella coverage will also protect against certain lawsuits that may not fall within the parameters of your existing car insurance policy. This may include false arrest, slander, and libel claims. (In most cases, the insurer will pay the cost of defense outside of the policy limits, meaning the coverage limits aren’t affected by the cost of the defense.)

Personal injury lawsuits resulting from an accident are more common than many of us are led to believe

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The National Highway Traffic Safety Administration confirms that the 5.5 million car accidents in the US each year result in 3 million injuries and 40,000 fatalities. This doesn’t take into account the 60,000 injuries and 5000 deaths caused by truck accidents every year. It should come as no surprise that personal injury trials remain prevalent, making up 60% of all tort, contract, and real property trials in 2005.

52% of personal injury lawsuits in 2005 were related to car accidents:
  • 52%
    Automobile Accidents
  • 28%
    Other
  • 15%
    Medical Malpractice
  • 5%
    Products Liability
While the threat of a personal injury lawsuit is real, losing in court is an even likelier outcome. Based on the statistics above, plaintiffs won their cases more that half the time.

 

In personal injury trials related to car accidents, juries favored plaintiffs in 61% of cases:

If you get into a car accident with the potential for getting sued, you can’t afford not to have umbrella insurance.

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To connect the dots, if a car accident is likely to result in injury, which is likely to result in a lawsuit, you could lose out in court in the blink of an eye. You could easily max out your liability car insurance limits at $500,000, per the example above, to owe $250,000 out-of-pocket – without umbrella coverage.

An umbrella policy is designed to give you peace of mind in the face of an impending lawsuit. It will protect your personal assets, as well as any future assets including wages, against damages awarded in court from a car accident injury.

Even if you don’t have any assets to speak of, your wages can be garnished in a major lawsuit. An umbrella insurance policy will provide an umbrella of protection when car insurance runs out. In a lawsuit, this protection can prove to be invaluable by offering extra coverage above standard auto insurance – saving you hundreds of thousands of dollars.

What Will Umbrella Insurance Cover?
umbrella-insurance

Excellent question. Umbrella car insurance will cover any damages that aren’t paid out by a car insurance policy in a personal injury lawsuit related to a car accident. On top of that, umbrella insurance will also cover additional legal expenses in court above and beyond a set car insurance policy limit. Umbrella insurance may even compensate for wages lost due to court appearances.

For an insurance company, time is money. If you have umbrella insurance coverage, your insurance provider may spring for a crackerjack legal team to take care of the legal matter as quickly and efficiently as possible to save them money. In short, umbrella coverage may yield better legal representation as a byproduct.

Last but not least, don’t forget the fact that umbrella insurance may provide extra protection for any dependents on your policy. If your child causes an accident that results in a lawsuit, this same umbrella coverage may kick in to offer extra protection above policy limits. It is important to read the terms and conditions of your umbrella policy to confirm dependent coverage.

While umbrella coverage may seem confusing when you read the fine print, just keep in mind that:

Umbrella insurance provides coverage beyond basic auto insurance policy limits.
It may also cover extraneous circumstances that aren’t insured within a policy.

There are several instances when umbrella coverage may come in handy as an at-fault driver:

causes-1Not following traffic sign or signals, Not signaling while turning, Going over or under the posted speed limit, Ignoring weather or traffic conditions, Drug or alcohol use, Improper or excessive lane changing, Improper passing.

drugsDriving under the influence of drugs or alcohol

causes-3Defective brakes, other automobile defect

signalspeed-limitMalfunctioning traffic control signals, improper road signs, poor lighting or other highway defects.

image1Driver is responsible for paying your damages

image2Driver is responsible for paying your damages. A bar or restaurant may also be responsible if they continued to serve alcohol to an obviously intoxicated patron.

image3Automobile manufacturer or supplier may be responsible for paying your damages.

image4Governmental entities may be responsible for paying your damages.

It’s important to secure your umbrella coverage before you have an accident. No one is perfect and even the most skilled driver can make erroneous mistakes. If you neglect to follow traffic laws, speed, or driver erratically to cause an accident, you may be vulnerable to a lawsuit. If the accident was your fault, and damages are awarded in court, umbrella insurance can be used to cover the excess so that a substantial judgment doesn’t rest on your shoulders.

Umbrella insurance may provide coverage for?

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Bodily Injury Liability.
Coverage for other party’s medical bills and liability claims from bodily injury damages in an at-fault accident.

As a distinction, umbrella insurance doesn’t cover damage or replacement of your own vehicle in an accident
– these areas are covered by collision car insurance.

home

Property Damage Liability.
Coverage for damage to other party’s vehicle or property in an at-fault accident.

Umbrella insurance is a secondary policy that extends your liability coverage.

vanIn order for umbrella coverage to take effect, you must be at fault. To paint a clearer picture, let’s suppose that you failed to yield on a busy road and caused a car accident. The occupants of the other vehicle were injured and had to be taken to the hospital. Injury expenses exceeded your car insurance bodily injury limit of $500,000 to total $600,000. This leaves $100,000 left uncovered.

If you have an umbrella policy, it will provide coverage for the extra $100,000 in medical expenses. The umbrella policy will be available up to set amount, determined by your choosing. This same protection applies in a car accident lawsuit scenario, where any damages or other legal expenses aren’t covered by a car insurance policy.

lockerIn a worst-case scenario, you could cause an accident that leaves another driver injured and unable to work. If the case is taken to court, as it likely will be, a jury may award this driver millions of dollars in damages to compensate for lost wages. Without umbrella coverage, you may lose your hard-earned savings. If you don’t have enough to pay for damages, the court may take your house and garnish your wages for years. Umbrella insurance can prevent such a frightening circumstance from ever taking place. Even if you cause a serious accident that results in injury, extra financial protection provided by an umbrella policy will be available to shelter your home, savings, and future earnings.

Before umbrella coverage kicks in, car insurance policy limits must be exceeded.

While umbrella insurance seems advantageous across-the-board, it’s still important to explore the pros and cons before making a decision that could affect your policy:

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  • Extra protection above auto liability coverage limits
  • Broader coverage for loopholes or exclusions in a liability policy
  • Affordable insurance rates for payout value
protect

  • Covers Costly legal expenses in a lawsuit
  • Offers peace of mind against litigation
budgetExtra insurance expense for drivers on a tight budget
carMay not be used outside of an at-fault accident

It’s hard to predict when and if you will get into a car accident. It’s even more difficult to determine if a minor or major car accident will result in an injury that warrants a lawsuit. You might not ever use umbrella insurance as supplement coverage on your car insurance policy, but it you need it, it could provide financial protection that can save you thousands.

 

How to Save Money on Umbrella Insurance

dollar-bagDepending on the provider, umbrella insurance coverage may be available from $1 million up to $10 million, based on certain qualifications. Minimum requirements for umbrella insurance will vary by insurer and may start at #250,000 per person/$500,000 per accident in car insurance bodily injury coverage with $100,000 per accident in car insurance property damage coverage.

If you are a driver with a car insurance policy, you can benefit from umbrella coverage.

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One of the most common misconceptions about umbrella insurance is that it is only for the wealthy. You may think that you can only be sued if you have a large amount of money in the bank or valuable assets.

The truth is that anyone can and will be sued if an accident results in a serious injury or fatality. Umbrella insurance can protect wealthy drivers from losing their savings in court. It can also protect the average driver from having their wages garnished to pay for legal damages.

ui-policy

Before you decide on umbrella insurance, it’s time to count the cost. The insurance Information Institute estimates a standard $1 million umbrella insurance policy at $150-$300 per year2. Every $1 million that you add on to the policy will increase price accordingly. As an example, you may pay roughly $182 for a $1 million umbrella policy. $304 for a $2 million policy, or $414 for a $3 million policy.

Other industry experts estimate adding an extra $50 per year for each additional $1 million in umbrella coverage. No matter how you slice it, umbrella coverage is an excellent deal when you compare cost versus value. Although an initial investment may run you $150 or more added on to your annual policy, you can dramatically increase your coverage by millions of dollars for just $50-100.

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oklahomaJust because you have an umbrella insurance policy doesn’t mean that you want to use it. Having an accident can be expensive, stressful, and dangerous. 2010 statistics from the Oklahoma Office of Highway Safety confirmed that the riskiest time to drive is on a Friday between 5 and 6 PM.(2)

car-crashedCar crashes are most likely to occur on Fridays, at 12,633 accidents in the report, compared to other days of the week like Thursday, at 10,799, or even Sunday, at 6592 accidents. October happens to be the most popular month for accidents, at 6361, compared to September, at 6356, or January at 4710. Out of the 69,807 crashes in Oklahoma in 2010, a whopping 41,573 accidents occurred on clear days compared to only 5298 accidents on rainy days.

If you’re in a position where you can barely afford to pay your insurance, every penny counts.

Fortunately, there are several steps you can take to keep
secondary policies like umbrella insurance as low as possible:

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Lower rates on your car insurance means the potential for more affordable umbrella coverage as an add-on.

car-home
Combine policies with one provider. After you’ve found an insurance company that you’re happy with, combine as many policies as possible, including homeowners or renters policy and your auto and umbrella policies. Bundling multiple policies will offer more affordable rates across-the-board.


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Shorten your commute and avoid heavy traffic. A longer commute in rush-hour means an even greater risk of getting into an at-fault accident. Fewer accidents will improve your driving record, often reducing your auto insurance rates.

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Buy only the amount you need. If you’re new to umbrella insurance, this may take some time consulting with your insurance agent. However, it’s important to avoid overpaying for umbrella coverage you don’t need to keep insurance costs affordable.




Hands-down, most independent agents recommend adding umbrella insurance to a extend auto liability coverage. Their argument is that peace of mind provided against an unfortunate accident that results in a lawsuit can be a priceless. When weighing the pros and cons of umbrella insurance, consider how much your security is worth to you every time you set foot behind the wheel. A relatively small investment in an umbrella policy could mean savings of $1 million or more in legal liability.

Reviewed by:
Licensed Insurance AgentEric Huffman

Sources:

  1. Terry, Staci A. “Personal Injury Lawsuit US | The Legal Finance Journal.”
    The Legal Finance Journal. Web. 29 July 2013.
  2. “How Does An Umbrella Policy Work And How Much Does It Cost? | Financial Samurai”.
    Financial Samurai – Honorable Personal Finance. Web. 29 July 2013.
  3. The information provided is informative only and is not intended to be used for legal purposes. No one should use this information as a means to misrepresent or defraud an insurance company. If you are unclear about your insurance needs, please contact a license insurance professional for more specific direction.

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