Understanding the Umbrella Insurance Policy - Umbrella Insurance Policies

An umbrella insurance policy provides extra protection against financial liability. It doesn't replace regular insurance, but instead sits on top of traditional insurance policies. Perhaps an example is the best way to understand how umbrella insurance policies work.

Example of Umbrella Insurance in Action:

1. You are a small business owner and someone gets seriously injured at the holiday party. An investigation shows that your company is to blame, and must pay $2 million for the victim's medical fees, lost wages, and emotional damages.
2. Your business liability insurance has a $500,000 limit and a $5,000 deductible. You file a claim with the business insurance company and pay the deductible. But if you stopped here, you would be responsible for the remainder of the settlement, $1.5 million. This would bankrupt your small company. Umbrella insurance policies protect against this loss.
3. Your umbrella liability insurance has a $5 million limit and a $500,000 deductible. Your business liability insurance policy limit meets the umbrella deductible, and your umbrella insurance policy pays the entire remaining settlement.
4. From the accident to the resolution, you only pay the $5,000 business insurance deductible.

Umbrella insurance policies cost relatively little compared to the protection and peace of mind they offer. If you have a significant amount in assets, a lot of risk, or run a business that affects other people-you need to purchase an umbrella insurance policy.

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