Umbrella Insurance – What is it, and how does it work?

What is umbrella insurance?

Umbrella insurance is an additional layer of insurance that provides added protection above current limits and coverages of your existing policies. The term umbrella is used because it allows for a broad range of coverages. Umbrella insurance can provide coverage for claims related to property damage, injuries, lawsuits, and personal liability.

How does an umbrella insurance policy work?

An umbrella policy is designed to provide an added layer of protection to your assets and your future well-being. It comes into effect when a claim arises in one of these two ways.

First – When it comes to your home, your car, RV, or other assets, your insurance policy has certain coverage limits. If those limits are used up (exhausted) the umbrella policy swings in to provide the additional limit you need.

Second – All insurance policies have some insurance exclusions. The umbrella policy is designed to help pick up that slack, covering certain claims arising from libel, slander, and liability coverage on rental units.

What does umbrella insurance protect against?

As mentioned previously, an umbrella policy provides an extra layer of coverage beyond current limits within existing insurance policies and for claims that those policies may not cover.

Generally speaking, an umbrella policy provides liability coverage for injuries, lawsuits, property damage, and personal liability situations.

You may be already thinking – “That is why I have car insurance and home insurance! Why do I need this?” and you would be correct. Your current insurance policies do provide a range of coverage for certain limits. Umbrella insurance is here to cover those situations that go beyond or above your current insurance limits.

Do I need umbrella insurance?

There are three ways we can answer this question.

The first may be obvious. We are insurance professionals who believe in reducing risk where possible. The added premium to add a quality umbrella insurance policy is usually much less than our clients think. The price for the added peace of mind may make a lot of sense for you.

The second is not as obvious. In Ontario and Canada, we see what appears to be a rising culture of litigation in our society. While the frequency of litigation issues increases, so do related costs. An umbrella policy broadens your coverage and expands limits to protect you and all you’ve worked to achieve from suffering significant financial loss.

The third may be obvious if you know us. Your current insurance portfolio is unique to you. You may have questions about what you are currently covered for, what limits you have, and what gaps may exist. We are happy to review your insurance, provide advice and education, and consult on options. Reach out to discuss more with us today.

Examples of where an Umbrella policy may come in for your personal insurance needs

A person or company sues you for making a defamatory statement, either spoken (slander) or written (libel).

Causing bodily harm to others covers the cost of medical bills and liability claims:

• In an accident where you are found at-fault, you cause excessive bodily injury to another person.
• By your dog biting a person.
• A neighbouring child gets hurt playing on your lawn.
• A guest or visitor to your home falls, suffering injury.

Causing damage to another’s property (vehicle) where you are deemed to be at-fault

Owning a rental home? Examples where an umbrella policy would be good for you as a landlord include: 

• Someone trips over a crack or slips on ice on the sidewalk in front of your rental property.
• Your tenant’s dog bites someone, and you are held responsible.
• A tenant’s guest falls on the property and sues you.

A simple example of an Umbrella policy in action?

You are driving down the road, get distracted for a moment, and swerve into another car, injuring three people in the car. You are deemed at-fault for the accident. 

Let’s assume you have purchased a limit of $1,000,000 for third-party injuries. What would happen if the claim is for $1,300,000?

Your insurance company would pay out $1,000,000, but what about the remaining $300,000? Without an umbrella policy, you would be on the hook. With it, the umbrella policy would cover the remaining total.

You deserve this next level of peace of mind. The price for this kind of peace may surprise you too. Reach out to us for a free quote or to discuss your unique situation to see if an umbrella policy is right for you.