Sometimes the fun things in life carry risk and you may need an umbrella insurance policy to protect you. Umbrella Insurance provides an additional layer of personal liability protection. But you may not understand exactly what that means, what it covers, or if you really need it. We’ll explain the ins and outs of an umbrella insurance policy.
What is Umbrella Insurance?
Umbrella insurance is extra insurance coverage you can opt for that protects you from major claims and lawsuits. Umbrella insurance helps in many ways including:
- Coverage begins when your homeowners, auto and other property insurance policies go above coverage limits.
- Protects you from both bodily injury liability claims and property damage liability claims.
- Provides coverage for claims that may be excluded by other liability policies such as false arrest, libel, slander, malicious prosecution, or liability for rental properties.
- Covers, not just the policyholder, but also other members of your family or household.
- Provides insurance to not only your property and vehicle but other incidents or accidents you or a family member has been involved in.
How does umbrella insurance work?
Your umbrella insurance will kick in if you are found responsible to pay damages. Also, it can be used if you are sued and need to pay for an attorney. It pays only once your basic liability insurance limits from your homeowners or auto policy get exhausted. If a claim is made against you, your insurance company may pay it up to the limits of your policy. After that, you are responsible for the remaining amount out of pocket. That is, unless you have an umbrella insurance policy.
Do I need it?
Since the sole purpose of having umbrella insurance is to protect your assets, it only makes sense if you have assets. Here are other things to consider at when considering an umbrella policy:
- Earn 100K per year
- Have assets over 500K
- Rent property
- Own vacant land or a vacation house
- Have a pool, trampoline or a treehouse
- Own a specific breed of dog
Here are some examples of incidents an umbrella policy could cover if your homeowner’s insurance or auto insurance wasn’t enough:
Example Scenario #1
You are celebrating the start of the summer at your home and having a large house party. You are unaware but one of your guests has had too much to drink and he leaves your house. The guest ends up in a car accident after hitting a tree and another car in the process. Both parties sustained injuries costing well over $500k. Your homeowner’s coverage only covers some of the costs. This is where your Umbrella Insurance kicks in. It pays for anything that your homeowner’s policy does not.
Example Scenario #2
You have a trampoline at your home. The neighborhood kids are playing on it when one of the children falls off and sustains an eye injury. He ends up with many months of therapy and multiple eye surgeries. The neighbors sue you for negligence and hospital bills resulting in close to a million dollars. Your regular homeowner’s only cover some of the costs. If you had Umbrella Insurance you won’t have to go into your life savings and remortgage your home to pay the lawsuit.
How much is it?
The cost of an umbrella liability policy depends on several factors:
- how much coverage you purchase
- where you live as insurance rates vary by state
- the risk that covering you presents to the insurance company. Things considered include your properties, your cars and specialty vehicles, your driving record, number of household members, whether or not you have pets.
You should be aware of is most insurance companies will require that you take out the highest amount of liability insurance on your home and auto policies prior to adding on umbrella insurance.
The easiest way to know how much umbrella insurance costs is to request a quote by an insurance company directly. Most insurers will provide a quote over email or phone.
Who carries it?
Many residential private property insurance companies carry umbrella insurance policies. Examples include Geico, AllState, Liberty Mutual and USAA (for those in the military). Note that most require that you carry your auto or home insurance with them as well. It’s best to do your research and call for numerous quotes.
Are there things that it doesn’t cover?
Here are some things your umbrella policy likely does NOT cover:
- Damage you or a covered member of your household intentionally causes.
- Damage done during business activities. You’ll need business liability insurance to cover these claims.
- Liability you agreed to assume under a contract you signed.
- Damage to your own property. (It only covers you if you are responsible for damage to someone else’s property. Your homeowner’s insurance should cover damage done to your own property.)
If you are considering umbrella insurance, you probably need it. Whether you have some wealth or have some risker life hobbies or a lifestyle that is a bit more uncertain, its best to make sure you are covered. We hope you’ve learned more about why you need an umbrella insurance policy.