Umbrella Insurance: What It Is and Why You Might Need It

Your mortgage lender and vehicle loan lender both require you to have insurance for your home and car.

Do you really need umbrella insurance if it is not required? The answer boils down to your liability risk.

Your homeowners and vehicle insurance will include liability coverage, but there are limits. If you engage in risky activities, it would be wise to obtain additional insurance coverage. This will protect you in the event of any unfortunate incidents.

What is umbrella insurance?

Umbrella insurance is liability insurance that covers losses beyond the limits established in your homeowners and vehicle policies.

If an accident on your property seriously injures someone, your policy limits might not be enough. Umbrella coverage starts when your other insurance ends.

Accidents happen — this is why we have insurance: to protect our finances. However, lawsuits can be very expensive. If you cause an accident, your insurance might not cover all the damages you are responsible for.

You don’t just make the other party go away after they get awarded up to your policy limits. A court could award a portion of your future earnings to cover costs — meaning you could be paying damages for a very long time.

Who needs umbrella insurance?

More people could probably benefit from having umbrella insurance than they probably realize. 

Medical costs are very expensive, so if someone gets hurt, they want someone else to help pay the bills. If you are found to be at fault, that “someone” is going to be you.

Individuals with a high — or even moderate — net worth can be targets for lawsuits. If you fall into this group, you should definitely consider purchasing umbrella coverage. However, umbrella insurance covers other risks, too. 

Here are some possible scenarios that could make umbrella coverage a good idea:

Pools or tubs for swimming.

If you have a water feature, you probably already pay higher insurance premiums because accidental drownings are a risk. Umbrella insurance adds an extra layer of protection. 

Trampolines or elaborate playsets

Trampolines or playsets pose a higher risk for injuries. If you have these types of structures in your yard, you might want to add umbrella insurance.

Pets

Pets can be a great addition to your family, but they pose certain added risks. You can mitigate that risk with umbrella insurance.

While dogs might be the most common pets to present an injury risk, they aren’t the only ones. Reptiles can pass salmonella infections to humans, causing significant illness or even hospitalization and death. Horses can kick or buck riders, resulting in serious injuries. Cat scratches or bites can lead to infections. Exotic pets can pose significant risks, due to unpredictability.

Do you have questions about specific dog breeds and insurance? Check out our recent article to get the answers you’re looking for.

Additional Risks

You might also want to think about the risks your non-work activities may pose. Volunteer positions — or even simply being outspoken in the community — can expose you to risks you might not have ever even considered.

It’s sad and frustrating that volunteering in your community could expose you to getting sued, but that’s the type of litigation risk that liability insurance is supposed to cover. Umbrella coverage is there to protect you if the damages go beyond the limits of your homeowners policy. Umbrella insurance even covers damages that are not covered by standard insurance policies, including libel, slander, or defamation.

The main questions that need to be answered when considering adding an umbrella policy for volunteer work are how much risk are you exposed to and what type. Volunteering to coach children in sports has different risks than being a volunteer at the library. Volunteering at a church will have different risks than being a member of the PTO.

It’s important to note here that if you are on the board of a volunteer group or nonprofit organization, you should ask about their coverage for officers and see if you are covered. However, a personal umbrella policy does not cover decisions made as a board member. It is important to be aware of this. 

How much umbrella insurance do I need?

The amount of umbrella insurance you need depends on your risk. A general guideline is to have coverage that matches your net worth.

To determine your net worth, add up all of your assets including: 

• Your home
• Vehicles
• Investments
• The value of your retirement accounts

If your net worth is $1 million, you should consider purchasing an umbrella policy with at least $1 million in coverage. You might even want to purchase a higher level of coverage depending on your level of risk exposure.

What does umbrella insurance cover?

Since umbrella coverage is designed to protect you over and above your standard policy coverage, it provides additional protection for much of the same circumstances.

Bodily injury

This protection pays for costs if someone gets hurt and it’s the policyholder’s fault. Included are hospital bills, medical expenses, and rehabilitation. Car accidents, dog bites, and injuries at home are examples of situations where bodily injuries can occur.

Property damage

This protection pays for costs if you damage property and are responsible for it. Car accidents that exceed your policy limits — such as if you were to hit a rare or antique sports car — would be situations where an umbrella policy would kick in.

Other personal liability

This is the one category that might not even be covered under your standard homeowners insurance policy. Think: slander (a spoken statement) or libel (a written statement).

Social media represents one of the most fertile grounds for libel accusations the average person might encounter. People who couldn’t make false statements before now have constant access to platforms where they can do so.

How much does umbrella insurance cost?

Umbrella insurance coverage is designed to help with liability claims that are above your insurance policy limits. Because of this, you might be required to increase those policy limits up to a certain level before your insurance agent will write an umbrella policy.

Umbrella policies are typically fairly affordable, with a $1 million policy averaging between $150 to $300 a year. Every additional $1 million in coverage will average about another $50 to $75 more on the policy. Of course, rates will vary depending on your risks and other factors. The best way to find out how much an umbrella policy might cost you is to contact your agent for a quote.

Who offers umbrella insurance?

A wide range of insurance carriers offer umbrella insurance. If your insurer offers multiple lines of insurance such as homeowners, renters, auto, and other types of insurance, they likely offer umbrella insurance coverage as well. 

Check your current policy limits before considering additional protection, as it is meant to supplement your existing coverage. Talk to your insurance agent to see if an umbrella policy is a good idea to protect your home and family.

How can I get a quote for umbrella insurance?

We live in a litigious society — one in which healthcare and other costs are rising dramatically. Your policy limits may not cover all your responsibilities if you’re at fault in an accident.

Unforeseen events happen — it’s part of life, and it’s why we have insurance coverage. If a small accident becomes a bigger event, umbrella coverage is there to protect what you have built. Get additional information on umbrella insurance, and start your application today!

Disclaimer: 

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