Umbrella Insurance Policy
What it is:
An umbrella insurance policy is an insurance policy that covers claims beyond what traditional property and/or liability insurance covers.
How it works (Example):
Businesses also obtain umbrella policies to mitigate any lawsuits or judgments.
For example, let' say that John Doe has liability insurance for his business. The policy covers up to $10,000 of personal injuries if one of John's customers is harmed by, say, falling down the steps in his business.
Because John's policy only covers $10,000 of medical bills, he would be on the hook for the other $190,000. If John has an umbrella policy, however, the $190,000 would likely be covered.
Why it Matters:
Most of us realize that auto and proerpty insurance are important, but few people realize how limited that coverage can sometimes be, particularly when someone sues them for damages in a business. In many instances, companies, even small ones, can be sued for tens of millions of dollars.