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What is Umbrella Insurance?

Umbrella Insurance is a wonderful invention of insurance that very few people know about or understand. This is a shame because much like umbrellas, umbrella insurance is a cheap and practical way to keep you safe from something you don’t want to deal with. Regular umbrellas protect you from water. Umbrella insurance protects you from lawsuits. Now I’m not saying that getting wet while it’s raining is a good thing – but I would care more about getting hit by lawsuits then I would about raindrops. So read on and find out more about this great bit of insurance.

Umbrella Insurance’s Roots

You have to go to the basics of insurance before you can really tackle the use of an umbrella policy. And the basic bit you’ll have to look at is liability insurance.

We’ve covered liability insurance at length repeatedly in this blog, because it is increasingly becoming the coverage people are buying insurance for. Do you really need an insurance policy to replace a windshield when it cracks after being hit with a stone? Probably not. Do you need an insurance policy to pay for legal fees when you get hit with a lawsuit that is demanding $5,000,000 (this has happened several times to McDougall clients)? Absolutely.

Liability insurance is basically there to cover you if you get sued. It also pays with expenses associated with the trial process, including lawyer fees, expert testimony and other legal costs.

If you have a policy with McDougall Insurance, you should know that we view having liability limits of $2,000,000 as a minimum in today’s world (a stark departure from the provincially mandated liability coverage of $200,000). This high figure can cover substantial costs and judgments, but often (like in the case of $5 million suits), it actually isn’t enough to give you the coverage you need.

How an Umbrella Policy Works

This is where umbrella policies come in. Unlike an auto or property policy, which provides liability insurance in addition to what we call “physical coverage” (coverage that protects the physical item, physical coverage would reimburse you if you car gets hit or your home burns down), umbrella policies actually only provide liability coverage.

Instead, they work as a second line of defense for you, extending the natural liability limits on your home, auto, cottage or other policies. This provides you with increased protection from lawsuits (higher limits), without having to pay for an increase on the liability limit for each policy.

Basically think of it this way – you have both a home and and auto policy. Your auto policy has a liability limit of $2,000,000 and your home has $3,000,000. After hearing me mention that we’ve seen claims hitting $5,000,000, you start to think maybe your liability limits are high enough, and so you want to increase your coverage.

One way to do that would be to just flat out increase your auto and home limits to $5,000,000 each. Although simple, this approach tends to be expensive and many insurance companies won’t provide such high liability limits. The other option is to buy an umbrella policy for $3,000,000 which covers both your home and auto policy. The limits on your policy’s stay where they are, but if you ever experience a lawsuit that exceeds the limits, the extra umbrella coverage kicks in.

So using our example, if you got the umbrella policy and got into a car crash that resulted in you being sued for $3,000,000, the first $2,000,000 of the judgement would be paid by your auto liability insurance, while the rest would be picked up by your umbrella policy – keeping you safe even in the face of a massive legal settlement.

The nice thing about umbrella policies is that they can be comparatively cheap – you can drastically increase your limits by $5,000,000 or more, by paying just a few hundred dollars a year. If the worst of the worst ever happens, it will be the smartest investment you ever make.

Think you’re interested in getting an umbrella policy? Talk to us! Give us a call at 1-800-361-0941 or fill out the form below to have one of our representative contact you. We’ve been writing umbrella policies for almost 70 years, and we will do everything in our power to make sure you are protected as effectively and efficiently as possible.


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