Understanding How Umbrella Insurance Claims Work

Understanding How Umbrella Insurance Claims Work

Most people have standard liability coverage in their homeowners, auto, or renters insurance. However, standard plans don’t cover all types of claims or lawsuits, which is why it’s advantageous to have umbrella insurance to fill in coverage gaps.

Scope of Umbrella Insurance Coverage

Your homeowners policy or auto insurance offers only limited liability coverage if you damage someone’s property or cause injuries. With the right umbrella insurance plan, you can cover all types of unforeseen incidents that might trigger an umbrella insurance claim. An umbrella plan increases liability limits on your home and other valuable belongings. It also provides more comprehensive coverage.

 How Does Umbrella Insurance Work?

Suppose your car crashes into a tree or a tree on your premises falls on a neighbor’s roof. Your umbrella insurance kicks in after your underlying policy’s limits have been used up and pays for the remaining expenses. It’s handy to carry this insurance in case you cause a serious accident that causes more damage than your policy limits.

How Do Liability Limits Work?

Liability limits on your policy reflect the maximum amount the insurer will pay for damages. After that, you have to pay out of your own pocket unless you carry umbrella insurance. It’s important to consider umbrella coverage if you regularly throw house parties, which increases the odds of an injury on your property.

Review your policy coverage and deductibles to get an idea of how your liability plans work together. Suppose you have an auto insurance plan with a liability coverage limit of $400,000 and a deductible of $1,000. Meanwhile, your umbrella policy covers $1 million with a deductible of $400,000. If you cause an accident and face a $1 million lawsuit. What happens next?

First, you will have to pay the $1,000 deductible from your auto policy, and then the auto insurer will pay the rest of the $399,000 coverage limit. Once you have met the deductible for your umbrella policy, it will cover the rest of the settlement ($600,000).

 Umbrella Insurance Claim Scenarios

There are many different ways an umbrella insurance claim may arise. Here are a few of them:

  • Multiple crash injuries: You crash into a car full of people. Several passengers sustain serious injuries that exceed your standard coverage limits.
  • House party: A guest slips and falls at your house party and misses work for six months. The extended treatment and rehabilitation use up your standard coverage.
  • Cargo damage – You slam into a truck carrying very expensive goods that are destroyed by the collision. There is no way your standard policies will cover all of it, but an umbrella policy will.
  • Accident caused by a teen driver – Your teenage son borrows your car and goes on a joy ride with friends that ends in disaster, causing severe injuries to all involved.

Each of these events can be financially devastating for you without umbrella coverage. Ask yourself what are the chances of any of the above events happening to you. Accidents can occur anytime so you should consider having adequate umbrella insurance in place.

Contact us at Chambers & Company Insurance Brokers for more information on umbrella insurance and any questions you may have about your unique coverage needs.

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