What Are Umbrella Insurance Policies & How Do They Work?

What Are Umbrella Insurance Policies & How Do They Work?

Sign Up to get great deals for cars!

Subscribe to our blog that will make you look like an expert dealer.

Auto insurance keeps you financially protected from costs arising out of a collision or other incident causing vehicle damage. 

Regardless of which driver is at fault, car accidents can result in thousands of dollars in mechanical damage, medical expenses, and property damage. That's when auto insurance comes to the rescue as the bills begin to add up.

But even though the typical insurance policy provides thousands of dollars in coverage, they have their limits, too. What if you're at fault in a car accident and cause damage or owe medical bills exceeding your policy's monetary maximum? Or what if someone sues you for an amount that's beyond what your insurance company agrees to pay? 

That's where umbrella insurance comes in. Umbrella insurance goes beyond your auto insurance's liability limits and adds an extra layer of security if you cause an accident and face unexpected additional costs. 

Let's look at the details of umbrella insurance and the specific areas it covers.

No items found.

Understanding liability car insurance

Before delving into umbrella insurance, it's helpful to know more about liability car insurance.

Mandated by almost all states, liability auto insurance pays for the other driver's expenses if you cause a collision. Two types of liability protection exist: bodily injury liability and property damage liability. 

If you cause an accident, bodily injury liability insurance pays for an injured person's medical expenses. 

Similarly, property damage insurance covers those costs if you're responsible for property damage in a traffic collision. 

Insurance companies specify maximum financial limits for liability car insurance: property damage liability limit, bodily injury liability limit per person, and bodily injury liability limit per accident.

The property damage liability limit is the maximum amount that your insurer will pay for damage you cause in an auto accident. 

The bodily injury liability limit sets a fiscal maximum per person injured in an accident where you're at fault. 

The bodily injury liability limit per accident restricts the total money paid for all persons involved in a collision that you cause. This limit is especially significant if multiple persons sustain injuries and need medical treatment.

Typical auto insurance policies group bodily injury limits and property damage coverage limits together. A standard policy might specify these limits as 100/300/50, setting monetary maximums of $100,000 bodily injury per person, $300,000 bodily injury per accident, and $50,000 property damage per accident.

However, some specific liability insurance limits depend on the company and might not differ according to category. 

Part of avoiding a traffic accident is driving a safe car in excellent condition. Whether you're shopping used for a full-size truck or an electric car, it can be a hassle finding not only the vehicle you want but one in great shape. At Shift, certified mechanics perform 150-point inspections on every vehicle sold, and you get a free Carfax report for the ultimate in transparency. What's more, you can buy any of Shift's cars directly online from the comfort of your home, know it has no hidden issues (from our 150-point inspection) and get a fair, up-front price.

What is umbrella liability insurance?

Umbrella liability insurance provides additional financial protection when you cause an accident and are responsible for resulting medical expenses and or property damage.

While liability auto insurance policies provide a monetary safeguard when you're at fault in a collision, they only do so up to a set maximum, leaving you susceptible to owing amounts exceeding that. 

Umbrella insurance is there in times of need when your standard liability insurance limits exceed their maximum amounts, and you need more monetary assistance to cover your obligations. 

Umbrella insurance coverage also pays for any legal fees if you happen to be sued for an accident you cause, adding even more security to your policy. 

For example, let's say you have 100/300/50 liability insurance on your car insurance policy. If you happen to be at fault in a collision and cause $70,000 in property damage and other people sustain injuries needing $320,000 in medical treatment, you've exceeded your policy limits and owe the remaining amount. If someone decides to sue you for additional funds or lost wages, your savings and possessions are at stake.

Umbrella insurance can relieve you from financial hardship by paying beyond your policy limits in a situation like this. 

Additionally, umbrella insurance can include others in your household who don't have insurance. So, if a person covered by your umbrella insurance causes an accident and is held responsible for damages, your policy may protect them, too. 

2019 Chevrolet Silverado 1500 Work Truck (from) $35,450

2019 Chevrolet Silverado 1500 Work Truck (from) $35,450
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
30-Day warranty
Free 7-day return
Free 7-day trial return
30-days warranty
No-Contact Test DrivesButton Text
No-Contact Test Drives
Shop used truck
2019 Chevrolet Silverado 1500 Work Truck (from) $35,450
30-Day warranty
Free 7-day return
Free 7-day trial return
30-days warranty
No-Contact Test Drives
No-Contact Test Drives
Shop used truck
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What does umbrella insurance not cover?

Though umbrella insurance provides a fiscal safeguard when your regular liability insurance reaches its limit, it does have exclusions.

Umbrella insurance pays for others' property damage and medical expenses when you're at fault in an accident. It doesn't apply to damages to your personal property, however.

If you own a business and losses occur due to its day-to-day function, umbrella insurance won't cover the monetary costs. 

If you perform an illegal act resulting in damage or liability, umbrella insurance won't apply either.

Between insurance premiums, fuel, and maintenance, there are many costs to owning a car. Finding ways to save money on each keeps extra cash in your wallet for everyday expenses. One way to keep your bank account healthy is by financing your car purchase. While a longer-term loan minimizes your monthly payments, a low-interest rate lessens your total cost. Shift works with a network of trusted lenders who compete for your business, so you get the best deal on financing. 

No items found.

Umbrella insurance in summary

Though car insurance protects you and your assets from financial hardship, it’s not enough in some situations.

The liability coverage on your auto insurance policy contains set limits, and when they reach their max, you’re responsible for any amount beyond them. 

If you cause an accident resulting in property damage and or medical expenses that exceed your liability insurance policy, you’re obligated to pay the remaining amounts. And if someone sues you for lost wages, the total grows even more. 

Umbrella liability insurance gives you peace of mind for situations that put your assets and belongings at risk. 

2015 Ford Focus Electric (from $12,950)

2015 Ford Focus Electric (from $12,950)
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
30-Day warranty
Free 7-day returns
Free 7-day trial return
30-days warranty
No-Contact Test Drives
No-Contact Test Drives
Shop Used Ford Focus Electric
2015 Ford Focus Electric (from $12,950)
30-Day warranty
Free 7-day return
Free 7-day trial return
30-days warranty
No-Contact Test Drives
No-Contact Test Drives
Shop Used Ford Focus Electric
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

No items found.

No items found.

No items found.

No items found.
Author
Shift Editorial Team