It’s hard to keep the damage under control when an accident occurs. Due to this, people purchase insurance policies in order to get more protection and coverage in the event of a tragedy.
Insurance is available for a variety of things, from your car to your home, providing you with insurance coverage should you be responsible for an incident. This comes in the form of liability insurance coverage. But what happens if your liability insurance is exhausted? Insurance companies will only pay up to a certain amount, and anything thereafter will be your responsibility. This is just part of what umbrella insurance can assist you with.
Umbrella insurance coverage helps make up the difference when your liability insurance coverage runs out, but the expenses don’t stop. An umbrella insurance policy can also provide you with insurance coverage if you are facing lawsuits for a number of reasons. Umbrella coverage is very valuable insurance that several people can benefit from.
This post aims to educate you on umbrella policy and help establish if umbrella policies are the right fit for your lifestyle.
What is an Umbrella Insurance Policy?
Umbrella insurance is a type of personal liability insurance that can provide you with extended insurance coverage should you find yourself liable for an insurance claim that exceeds what your insurance policy will pay for.
Umbrella policies not only protect you, but they can also cover any members of your household should they be the ones to cause a serious incident. This is a very valuable type of insurance coverage that can help protect your financial savings and other assets. Failing to pay for a liability insurance claim you are responsible for can easily result in a lawsuit. That is where your personal assets will be up for grabs.
Umbrella insurance may just seem like it’s another excess liability insurance coverage, but the two actually do differ. Excess liability insurance coverage provides you with higher liability coverage limits. Umbrella insurance will help make up the difference in what you owe while also protecting you from other threats normal insurance coverage will not, like legal fees and libel accusations. Umbrella insurance works to help prevent financial ruin. If you fear you are at risk of dealing with such things, an umbrella insurance policy could be worth it to look into.
How Does An Umbrella Insurance Work?
Your umbrella insurance policy will kick in once you max out the insurance coverage limits on your standard liability insurance policy. Every part of your insurance policy comes with an insurance coverage limit. Insurance coverage limits are the maximum amount of money your insurer will payout in the event of an insurance claim.
Let’s say that you have an auto insurance policy with a liability property damage coverage limit of $250,000. When you’re driving along one day, you miss a stop sign and T-bone another vehicle. The damage done to the other vehicle is incredibly severe, accumulating in repairs worth $300,000. Your liability insurance coverage will pay its limit of $250,000, but then you will be stuck with owing $50,000 to the other driver. Normally, you would be expected to pay this amount out of pocket. But the umbrella insurance policy covers the $50,000.
As previously mentioned, umbrella insurance coverage also helps with lawsuits.
Suppose you frequently review restaurants in your area. You post these reviews online via your own website or a review website. One day, you go to a restaurant and find a lot of issues with the establishment. You decide to include these mishaps in your review. The restaurant may not like this and try to sue you for slander. Lawsuits can get messy and out of control very quickly. Umbrella insurance coverage can help with your legal defense fees.
These are just a couple of examples of how insurance coverage limits work and where your umbrella policy will come into play. Umbrella insurance is pretty much just there to pick up where your liability insurance coverage lacks. Umbrella insurance coverage also isn’t just for auto insurance. Umbrella policies can help with homeowners insurance, boat insurance, and others. A variety of instances where you find yourself being sued may be covered by an umbrella insurance policy as well.
More on what umbrella insurance does and doesn’t cover can be found in the next few sections.
What Does Umbrella Insurance Cover?
Umbrella insurance coverage offers protection for both you and any of the members of your household should you need to cover liability expenses outside of your insurance coverage limits.
An umbrella insurance policy helps in the case of a lawsuit by another party following injury or property damage. An umbrella policy can also help with a variety of insurance claims that normal insurance does not cover, like defamation lawsuits.
Here is a further look at what your umbrella insurance policy will cover:
- Others’ property damage and injuries - As you have probably noticed, a bit aspect of an umbrella policy is liability insurance coverage. Due to this, property damage and bodily injuries that you cause to another party will be covered if your standard liability insurance limits are exhausted.
- Lawsuits and legal fees - If you are sued for something like libel, defamation, or slander, your umbrella policy can help cover legal fees. This may occur if you post something online about someone else that they feel is inaccurate. Your legal defense costs will be covered by umbrella insurance if you are sued after an accident in your vehicle or home.
- Tenant damage or injuries -If you are a landlord, injuries to your tenant and damage to their property can be covered by your umbrella insurance policy. If this is of interest to you, check with your insurance agent regarding all the rules and regulations about this aspect of the umbrella insurance policy.
A couple of other coverages umbrella policies provide include malicious prosecution, wrongful entry, false arrest (or imprisonment), and invasion of privacy. Should you come under fire for any of these, umbrella insurance can assist.
What Are Examples of Incidents Where Umbrella Insurance Can Help?
Looking at some specific examples may help you to get a better idea of what umbrella insurance can cover.
Here are some incidents your auto insurance or homeowners insurance policy may not be enough to cover, allowing umbrella coverage to save the day:
- Your dog bites a guest - Dog bites are generally covered by homeowners’ insurance, but injuries can get very serious very fast. If you are sued for an amount beyond your homeowners’ liability coverage amount, an umbrella policy can help pay where your home insurance coverage stops. Be aware that you may run into some troubles receiving your insurance payout if your dog’s breed is not covered by your homeowners’ insurance. Some aggressive, large breeds are typically excluded from being covered under home insurance.
- You cause a serious car accident - Suppose you cause something like a five-car pile-up on the expressway. Being responsible for the car accident, the other drivers will expect your car insurance to cover their injuries and repairs. However, covering five separate vehicles can easily go beyond your liability coverage limits. This is where an umbrella insurance policy can come in to help.
- Your family member injures someone - Umbrella policies can provide insurance coverage if a family member ends up accidentally injuring someone in your home. Suppose your child accidentally hits his friend in the head with a basketball and his friend needs medical attention. The child’s parents may expect you to pay for the hospital bills but it turns out they exceed your homeowners’ insurance coverage limits. Where home insurance ends, your umbrella policy begins.
- You serve on a board and are sued - Part of the job of an umbrella policy, as has been outlined, is to provide assistance if you are sued. If you are part of a board of directors and face a lawsuit directly tied to a board-related issue, your umbrella policy can provide you assistance. This part of an umbrella insurance policy can get a bit tricky, so make sure you ask your insurance agent about the specifics for lawsuit coverage.
- You damage a building with your vehicle - Maybe you do not damage another vehicle but instead a building. That can be insanely costly, easily exceeding what your auto insurance covers. Your auto insurance policy would pay as much as it can, and then your umbrella insurance would step in to pick up the rest.
What Isn’t Covered by Umbrella Insurance?
While an umbrella insurance policy covers a wide variety of instances, there is also a lot that it will not offer you insurance coverage against. It is important to understand these exclusions prior to purchasing an umbrella insurance policy. You do not want to pay the umbrella insurance premiums just for it to let you down.
Umbrella coverage exclusions include:
- Intentional damage or injuries - If during the insurance claims process your insurer discovers you intentionally caused harm to another person and their personal property, then you will not receive the insurance payout. Most likely, you will be expected to cover the remaining amount in expenses out of pocket.
- Damage to your property - If damage to your property exceeds what your insurance policy covers, you will have to pay out of pocket for the rest. For example, if you have collision insurance coverage, but the repairs to your vehicle exceed your collision coverage limits, an umbrella policy cannot assist you.
- Damage to your personal property - Following an incident, if any of your personal belongings are damaged beyond what your insurance policy can cover, an umbrella policy will not be able to help. For example, if during an accident in your home, any of your belongings suffer, your standard homeowners’ insurance policy will help you. If replacement costs exceed insurance coverage limits, you will have to pay out of pocket.
- Business liability - Umbrella insurance will not cover any liability insurance claims associated with your business. This only works if you specifically purchase a commercial umbrella policy as opposed to a personal umbrella policy. Commercial insurance operates differently than personal insurance.
- Breach of contract - Generally, most umbrella insurance policies exclude liability insurance claims related to breach of contracts you have entered. For example, if you are sued due to the fact you have not paid someone for their service, then umbrella policies cannot help you despite umbrella insurance normally covering lawsuits.
How Much Does an Umbrella Insurance Policy Cost?
According to the Insurance Information Institute, a standard $1 million umbrella insurance policy will cost you about $150 to $300 annually. That’s about $13 to $25 per month. Offered umbrella coverage generally starts at $1 million and then can be increased in one million dollar increments. If you want $2 million in umbrella coverage, you can expect to pay around $75 more per year. After that, umbrella coverage rates tend to increase by $50.
When compared to other types of insurance, this appears to be a pretty cheap policy, but you have to remember that you usually cannot carry only an umbrella insurance policy. Umbrella insurance is meant to pick up the difference in what you owe and how much your standard insurance policy will cover. You are already paying for your main liability insurance policy with this umbrella insurance tact on. In many cases, you will have to carry the maximum liability coverage before you can consider adding umbrella insurance. Your liability insurance premiums may already be pricey. But when you see how much coverage an umbrella policy offers, the price for an umbrella policy is truly not that bad.
Like other types of insurance, how much you will personally be paying for an umbrella insurance policy depends on a number of personal factors. Your liability insurance coverage limits, the state you live in, and your insurability risk are just some of the things that insurance providers take into consideration when determining umbrella insurance premiums. The more assets you have to cover, the more you will be paying for your umbrella coverage. It is best to keep all of this in mind when you are shopping for an umbrella insurance policy.
Do You Need an Umbrella Insurance Policy?
Unlike auto insurance, umbrella insurance is not required by law. Umbrella policies are generally purchased by people who either have a lot to lose in the event of a lawsuit or do not believe their preexisting liability insurance policy will be adequate in the event of an insurance claim. If you own a significant amount in property or savings, you should probably look into protecting it further with an umbrella insurance policy.
If your insurance company caps its liability insurance coverage at a limit that does not suit you, why not throw in a few extra dollars a month for the millions of dollars in extra insurance coverage.
If you are still unsure, umbrella insurance coverage may be worth it for you if you fall into one of the following categories:
- Worried about liability insurance claims (any outside of the U.S.)
- Own high-risk items such as pools, trampolines, or guns
- You are a public figure
- Are a dog owner (check with your insurer to make sure your dog’s breed is covered)
- Host parties at your home often
- Serve on a board of directors
- Are an inexperienced driver
- Frequent reviewer of products and establishments online
- Enjoy participating in high-risk sports (ex. Hunting or skiing)
For further personal advice on umbrella insurance, speak with your insurance agent or broker to see if an umbrella insurance policy would be the best fit for you. If you are considering an umbrella insurance policy, chances are you would benefit from such coverage.
Remember that umbrella insurance should be expansive enough to cover also your hobbies and other activities. For example, if you love to ski, you need to be covered in the case that you cause damage or injuries by accident.
Some insurance providers do have exclusions to the specific hobbies they will protect you from. There is also typically an insurance coverage limit for umbrella insurance policies. Most umbrella policies are capped at $5 million. You can find some umbrella policies that go into $10 million and other umbrella policies all the way up to $100 million. But, if you are with a major insurance provider, chances are it stops at $5 million. If this is of concern to you, it would be best to shop around and compare umbrella policies.
If you are engaging in activities that would benefit from having such expansive insurance coverage, it would be wise to look into umbrella insurance coverage. It is always best to be overprotected than underinsured, especially when your assets are on the line.
What is The Best Umbrella Coverage Policy For You?
When it comes to determining how much umbrella insurance you need, you would first have to look at your net worth. A quick way to go about this would be to calculate the assets at risk. This would include things like savings and the value of your personal property. You should also consider any future income you may have. For example, if you are a medical student, you can reasonably expect to have a pay increase once established in the field.
Once you take all your personal aspects into consideration, you need to look at the liability insurance policies you already have purchased. You want to purchase enough umbrella coverage to fully cover any liability insurance claims. At the same time, do not forget to consider any chances of a lawsuit and legal fees you may encounter. If you need assistance, there are some calculators available online to help you conduct the math required.
Keep in mind that umbrella insurance policies are sold in million-dollar increments. The cheapest umbrella insurance policy will have $1 million in coverage while the next level will be $2 million in coverage. While the lowest umbrella coverage may seem adequate, you need to consider how much an accident can really cost. Auto repairs alone will be thousands of dollars, and any hospital stays required due to your negligence will only escalate things. Not to mention that lawsuits can be dragged out for years and years. You need to take all of this into account when purchasing an umbrella insurance policy.
How Can You Buy Umbrella Insurance Coverage?
Pretty much any insurance provider will offer umbrella insurance coverage, but you generally cannot purchase umbrella coverage without having another policy with them. May insurance companies require that you carry another type of insurance policy (auto insurance, homeowners insurance, renters insurance, etc.) before you can buy umbrella insurance. With these requirements, they may also ask that you carry a minimum amount of liability insurance before you are eligible for umbrella coverage.
For example, if you want to expand your auto insurance liability coverage, your car insurance policy must meet a minimum of $300,000 in liability insurance coverage before umbrella insurance coverage can be added on.
If you do not wish to do this or do not like what your insurance provider has to offer with umbrella insurance coverage, there are some insurance companies that offer stand-alone insurance policies. This kind of insurance companies are rare to come by, but if you desperately want to go about umbrella insurance coverage this way, that would be your best bet. This would just mean that you carry your traditional homeowners insurance or car insurance policy with one insurance company and umbrella insurance coverage with the other insurance company. Whatever way you go about it, know that umbrella insurance is providing you with extensive, valuable coverage.
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