Should I purchase a personal umbrella policy?
Umbrella insurance is an additional liability policy on top of existing insurance. It cannot be purchased as the primary policy. The purpose of such a policy is to provide additional coverage under two situations:
1. When you are under-insured under the primary policy. When a claim occurs that exceeds the limit of insurance on your primary policy, your umbrella policy would step in to pay. The important thing to keep in mind here is that while many policies offer good coverage, there are certain areas where amounts of insurance is limited.
2. When coverage is excluded under your primary policy. Most primary liability policies have exclusions that may limit coverage (for instance, in situations involving strict liability). In this case, your umbrella policy may respond to pay for claims that are excluded by your primary policy.
In summary, umbrella policies should be purchased if either of these two situations concern you. You should also only purchase it if it's cheaper than simply increasing limits or coverage on your primary policies. If those increases are affordable, they can make a umbrella insurance unnecessary (see An Introduction to Personal Umbrella Insurance to learn more about these policies).
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