auto gap insurance: Insurance and umbrella coverage

Umbrella coverage provides an additional layer of protection above and beyond the limits of the liability covered under your auto and homeowners insurance. An Umbrella policy can be less expensive than merely raising the limits on each of the policies separately, and sometimes can be issued in higher amounts than your auto or homeowners insurance company is willing to provide.

High coverage limits, such as an Umbrella policy provides, can be very important if you have significant assets (home, business, etc.). to protect The Umbrella policy protects you and others covered against the financial burdens of a catastrophic claim, lawsuit or judgment by (1) providing expanded liability coverage over and above your primary liability protection and (2) by increasing the amount of coverage beyond that of your auto insurance and homeowners/renters insurance. You’ll still need auto and homeowners coverage, as insurance companies require certain minimum levels of underlying coverage before they will issue an Umbrella policy.

Example. Let’s assume that you have an automobile liability insurance providing $100,000 / $200,000 in coverage – the former figure represents the maximum liability to one person injured and the higher figure is the maximum liability for all persons injured. If your teenage son is at fault in a driving accident and seriously injures someone – a few days of hospitalization and some surgery can easily eat up that $100,000 limit. An Umbrella policy pays for any liability you incur above that $100,000 limit up to the limits of your Umbrella coverage. And it is not all that expensive. Without umbrella coverage, you may be personally responsible for paying for the injured person’s medical bills over and above your policy limits. An umbrella policy provides you with an additional layer of protection that would pay those additional amounts, up to the limit of the umbrella coverage.

Stand-alone umbrella policies. If umbrella coverage is for you, you don’t necessarily have to change your current carriers. However, if you can’t get a good deal on umbrella coverage from those carriers, know that many insurers offer "stand-alone" umbrella policies where the insurance company that issues the umbrella policy doesn’t require you to also insure your home and car with the same insurance company. You’ll still need that basic level of policy, and the Umbrella limits go on top of those. So, if you own real estate or autos located in various states, this type of policy can insure them all and you don't have to change your current insurance companies.

General rule of thumb. As a general rule of thumb, anyone with over $100,000 in assets may want to consider purchasing umbrella coverage. It is generally not expensive as it is triggered only after primary levels of insurance have been exhausted – therefore the insurance company views the risk of it being utilized as far lower, knowing that the primary insurance company will also be handling nearly all of the legal work if there is a claim.

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