Liability coverage in your homeowners and
car insurance
will protect you from a lawsuit if you’re found responsible for property damages or bodily injuries. However, for some people, liability limits in a standard policy aren’t enough.
Umbrella insurance is worth the buy if the total value of your assets exceeds the limits of your car or
homeowners insurance
. You want to ensure you can replace your assets if you lose a lawsuit.
What is umbrella insurance?
Umbrella insurance is extra liability insurance that protects you from losses beyond your standard liability coverage. Think of an umbrella policy as backup insurance for your other insurance products like your homeowners, auto, and renters coverage.
Umbrella insurance is standard for those with increased concerns that another party will sue them and jeopardize their net worth. “In our litigious society, when a lawsuit settlement could very well wipe out your financial assets, you may want the extra protection for your assets that a personal umbrella liability policy provides,” says Loretta Worters, vice president of media relations at the Insurance Information Institute (III).
What does an umbrella insurance do?
Liability coverage covers the policyholder if someone is injured on their property and their damage. Providers will typically offer a minimum of $100,000 for liability coverage, but experts at the III recommend that homeowners purchase between $300,000 to $500,000 of liability coverage.
Also, unlike a standard liability policy which only covers injuries and damages, an umbrella policy covers legal cases and damage related to libel, vandalism, slander, invasion of privacy, and other hazards.
For some homeowners, $500,000 isn’t enough coverage. In that case, consider purchasing an umbrella policy.
According to Allstate, personal umbrella policies are usually available in million-dollar increments, from $1 million to $5 million. According to the III, most insurers will require you to have at least $300,000 worth of liability coverage on their
homeowners insurance
policy and $250,000 on your auto insurance policy before they will sell you an umbrella policy.
What does umbrella insurance cover?
Umbrella insurance can be added to your homeowners and auto insurance policy. Umbrella insurance is meant to protect you from financial losses if you are served with a lawsuit from another party. That being said, umbrella insurance will not cover damages and injuries to you, your dependents, and your property.
What umbrella insurance does cover:
- Bodily injury: Will help you pay for someone else’s medical bills if you’re at fault
- Personal injury: Will protect you from lawsuits related to libel and slander,
- Property damage: Will protect you if you’re at fault for a car accident
- Landlord liability: Will protect you if you’re a landlord and someone is injured on your property
What umbrella insurance doesn’t cover:
- Your property: If your property is damaged by someone else
- Your medical expenses: If you are hurt or injured on your property
- Business losses: Liability losses will not be covered if you operate from home.
- Intentional crime or actions: This policy won’t financially protect you from illicit behavior.
- Lawsuits from breach of contract: If you’re facing a lawsuit for a contract breach, umbrella insurance will most likely not cover you.
According to Emily Grant, vice president of Travelers Insurance, umbrella insurance covers you, your dependents, and relatives who reside with you. If you are a landlord, umbrella insurance will cover you against a lawsuit from your tenants.
Who needs an umbrella insurance?
You can be liable for almost anything, so you want to ensure your assets are protected in the worst-case scenario. “Most everyone could benefit from umbrella insurance. Think of umbrella insurance as peace of mind insurance if you are found liable for damages that exceed the liability limits of your car, home, boat, or other personal insurance policies,” says Grant.
Here are just a few of the people who may consider umbrella insurance.
- Landlords: If you have rental units, umbrella insurance is an excellent investment to protect yourself from lawsuits from your tenants, mainly if injuries occur in a common area like the lobby or gym.
- pet owners: Your homeowners or renters insurance will usually cover pet bites under your policy’s liability coverage. However, some insurance companies will not offer pet liability coverage for certain dog breeds and exotic pets; therefore, umbrella insurance may come in handy.
- Homeowners with “attractive nuisances”: Pools or trampolines—also known as “attractive nuisances,” can be appealing additions to your home. However, the likelihood of someone getting injured on your property may increase with these features. Some homeowner insurance may exclude “attractive nuisances” in their policy.
- Household with teenage drivers: Driving on their own can be an exciting milestone for a teen. However, parents of teen drivers may have concerns about dangers on the road, mainly because younger drivers have less experience behind the wheel than adult drivers, increasing likelihood of an accident.
How much does umbrella insurance cost?
Umbrella insurance is relatively inexpensive. Your first $1 million of umbrella insurance coverage will cost $150 to $300 per year. After that, insurance will cost about $100 to $150 per million dollars of coverage. The exact amount varies based on the number of homes, cars, and boats you insure, according to Worters. An umbrella policy is an additional coverage and not a standalone policy. You must purchase homeowners insurance and auto insurance before you get umbrella insurance.
Umbrella insurance is an excellent investment for those at increased risk of at-fault accidents on the road or your property. Paying thousands or even millions of dollars in medical, property replacement, or legal fees can leave a dent in many people’s finances, which can be challenging to recover from. So you should speak to your insurance representative to see if umbrella insurance is right for you.
“When it comes to talking about umbrella insurance, we like to say that ‘you don’t have to be a millionaire to be sued like one,” says Grant. “An umbrella policy can also help with defense costs if you are sued for these events.