How does umbrella insurance work?

Umbrella insurance works as personal liability insurance, covering any claim over auto or watercraft policy owners, or homeowners. This type of insurance serves a crucial purpose in protecting individuals from unique situations, such as losing a lawsuit for a greater cost than what their insurance pays.

It is important to understand how umbrella insurance works to better protect yourself, especially in situations such as car accidents which can wrack up a hellacious bill in no time at all.

What does umbrella insurance cover?

Investopedia discusses how umbrella insurance works. First, what does it cover? It essentially helps out in situations where a claim would cost more than what your insurance would pay for. Without umbrella insurance, you could get caught paying out of pocket for tens or even hundreds of thousands of dollars, depending on the claim you face.

A scenario in which umbrella insurance comes in handy includes causing an accident involving numerous cars. Getting into a crash with just one other person is often excruciatingly expensive, but what if you are on the hook for the medical bills of four, five or more people?

What are the primary benefits?

A benefit of umbrella insurance is that it covers members of your household, too. This means that even if your child is not the best driver, you can rest at ease knowing the umbrella insurance will cover them as well. Not only that, but umbrella insurance will cover you worldwide, too.

Generally speaking, everyone could benefit from umbrella insurance. But you should assess your risk factors specifically regarding whether or not you may get sued, and decide from there.