Umbrella Personal Liability Policy
What it is:
An umbrella personal liability policy is an insurance policy that covers claims beyond what traditional property and/or liability insurance covers.
How it works (Example):
Let' say John Doe owns a home and has homeowners insurance as his mortgage requires. The homeowners policy covers up to $10,000 of personal injuries if one of John's guests is harmed by, say, falling down the steps or being bitten by the dog.
One day, John has a barbecue and the neighbors come over. Sure enough, Jane Smith falls down John's stairs and breaks both legs and an arm. The medical bills are well over $200,000.
Because John's homeowners policy only covers $10,000 of medical bills, he would be on the hook for the other $190,000. If John has an umbrella personal liability policy, however, the $190,000 would likely be covered.
Why it Matters:
Most of us realize that auto and homeowners insurance are important, but few people realize how limited that coverage can sometimes be, particularly when someone sues them for damages. It is often a good idea to purchase umbrella personalcoverage from the same company as your auto or homeowners insurance provider to avoid conflicts between insurers regarding who should pay.