We usually have insurance policies for most of our assets and assume that in case of a loss, each of our assets is duly covered and that we are safe. But there are many situations in which the individual policy to cover a specific asset is not enough to cover each of those assets. For such situations, a cheap and convenient solution is to buy an umbrella insurance policy that would cover all those assets. In case the liability goes beyond the covered amount, the additional loss can be covered by the umbrella policy.
The underlying policies must be in force and valid for the umbrella policy to cover it. The policy kicks in when a given policy is not enough to cover a loss or liability. We will come to the details of three of the major types of policies in a while. The good thing about this kind of policy is that the umbrella cost is much lower than the sum of all the separate policies on top of which it would lie.
You might wonder that if you are anyway paying premiums separately for different assets that you want to protect, what is the use of buying another umbrella policy? The answer is that insurance claims have become more and more complex today, and the fine print can easily result in some part of the expense not being met by the policy payout. In effect, it is like a secure backup for the policies you have already bought. Let us examine three situations where this would work.
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Home Theft Insurance: Let us assume that you have a $1M insurance policy for theft of household goods from your home, which has been renewed every year for the last few years. But since the last renewal, you might have purchased several new gadgets or appliances that were not listed during the renewal. If the total value of good stolen comes to $1.25M, the remaining amount would be covered by the umbrella insurance policy.
Car Insurance: Suppose you have a car insurance that outlines the proportional liabilities of both parties in a car accident. However, because of some additional litigation against you, the amount for which you are liable is increased by the judge and your car insurance company agrees to pay only the amount mentioned in your car insurance quotes. In such a situation, the auto umbrella covers the difference and pays the liability on your behalf.
Medical Insurance: Health insurance policies are full of fine print that you need to understand thoroughly so that you get full coverage when you need it. But even after the utmost care, certain clauses always crop up and result in some or the other expense not being covered. If you have an umbrella insurance policy, you can use it to cover the part of your expenses not covered by your health insurance policy.
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