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Insurance coverage is intended to provide financial protection for the policyholder, against a number of situations and perils. Perhaps just as important, though, is that insurance offers peace of mind.
Chances are you already have personal liability coverage as part of your homeowners, renters, auto, and/or landlord insurance policies. However, if you need (or simply want) additional liability coverage to further protect your family and your assets, you might want to consider purchasing something called umbrella insurance.
What is Umbrella Insurance?
An umbrella insurance policy is an optional type of supplemental coverage. It is designed to offer added personal liability insurance protection for a policyholder (and their family), beyond what is offered by their other everyday insurance policies.
Let’s say an unexpected accident were to occur and you were responsible for damages totaling more than the coverage limits you already hold. Or if you are sued for damages by someone who claims you injured their reputation.
In either case, your umbrella coverage can step in to protect your bank account and assets alike.
Umbrella insurance can protect against a variety of situations, such as if:
- You’re in an auto accident and property damages and/or medical bills total more than your insurance coverage allows
- Someone is injured on your property and decides to sue for things like medical bills or even mental anguish
- You are sued for damaging someone’s reputation on social media
- Your hot water heater bursts and floods your downstairs neighbor’s home, causing more costly damage to their property than your homeowners insurance will cover
Umbrella coverage is not available as a stand-alone insurance product. Instead, it will need to be purchased as an add-on with your homeowners, renters, and/or auto insurance policies.
Who Needs Umbrella Insurance?
If you are concerned about being adequately protected by your existing liability insurance coverage, umbrella insurance might be exactly what you need.
Be sure to take a look at your existing liability limits and see if they provide enough coverage for your bank accounts and other assets. (Keep in mind that your 401(k) and primary home may or may not be at risk, depending on factors like where you live.) If your assets are not fully protected, or if you simply want to purchase additional peace of mind, consider adding umbrella coverage to the mix.
Umbrella insurance coverage is also a wise choice for wealthy individuals, as their assets can make them an easy target for lawsuits. Even a simple at-fault fender-bender could turn into an expensive court battle if the other driver were to suspect that you have a high net worth.
By purchasing additional personal liability coverage, you can further protect yourself from legal expenses and even judgments against you and your bank account.
What Does Umbrella Insurance Cover?
While umbrella insurance doesn’t cover all situations, it does offer protection in a number of important scenarios.
Bodily injury liability — Your home and/or auto insurance policies already include liability coverage. This protects you if someone else were to be injured in a situation where you or a covered family member were deemed responsible. However, this might not be enough to fully protect your assets, no matter how much insurance coverage you purchase.
Property damage liability — Umbrella insurance can pay for damages to someone else’s belongings, such as a home, vehicle, or other personal property. It can kick in whether the loss is due to an auto accident or other unintentional damage. With some policies, you are even covered if your minor child causes damage to someone else’s property (i.e. vandalism).
Other liability situations — You could be sued by someone who claims that you slandered/libeled their name and caused damage to their reputation. You could also be sued for things like mental anguish, lost wages, or pain and suffering following an accident. Either way, umbrella insurance can not only protect you beyond your existing coverage limits, but some policies may even step in to help with legal expenses.
Keep in mind that your umbrella insurance will only kick in once your other liability coverage is exhausted. So if you already have $500,000 in liability through your auto insurance company and are responsible for $750,000 in medical bills from an accident, umbrella coverage will only kick in for the latter $250,000.
Things Not Covered by Umbrella Insurance
Every umbrella insurance policy is different, so you should always read the fine print before purchasing to know what is, and is not, allowed. However, there are a few situations that you can almost always expect to be excluded from umbrella coverage.
Your personal property — Yes, umbrella insurance will cover someone else’s personal property if it’s damaged in an accident or due to something like a leak in your upstairs apartment. However, your personal property is not covered by an umbrella policy, even if your damages exceed those covered by your insurance policy.
Vandalism — Some umbrella insurance policies will cover vandalism-related damages caused by a minor child. If you were to be responsible for the vandalism as an adult, however — like slashing your neighbor’s tires or spray painting the side of a building — your umbrella insurance coverage would not step in to cover the damages.
Criminal acts — This is similar to the vandalism exclusion above. If you are found responsible for bodily injury and/or property damage that can be attributed to a criminal act, your umbrella insurance will not cover you for those consequences.
Business-related losses — Whether you own a large company or operate a small business out of your home office, umbrella insurance coverage typically won’t protect you from losses related to your business. This also applies to contract workers that you may hire (be sure that they carry their own insurance coverage instead!).
How Much Does Umbrella Insurance Cost?
Compared to other types of coverage, umbrella insurance is relatively affordable. In fact, according to the Insurance Information Institute, an umbrella policy with $1 million in personal liability protection will run you an average of $150 to $300 per year.
Of course, you can expect these numbers to vary based on the coverage limits you already hold, how much coverage you need to purchase, and even where you live. You may also find that your premiums are higher if you pose a greater risk to the insurance company by:
- Owning a trampoline, swimming pool, ATVs, etc.
- Owning a business
- Having a high net worth
- Coaching youth sports
- Owning certain breeds of dogs (such as large breeds or those deemed “aggressive”)
- Participating in certain sports where you could pose a risk to others, like boating, skiing, or hunting
If you want to lower your umbrella insurance premiums, try bundling coverage with other policy types. By buying your auto and homeowners insurance through the same provider — and then tacking on additional umbrella coverage to either one — you can usually reduce your overall cost.
Umbrella Insurance Deductibles
Since umbrella insurance coverage is provided as an add-on to your existing auto, renters, or homeowners policy, it does not typically have its own deductible when paying for a covered loss.
Instead, you will pay the deductible required by your primary policy in order for that coverage to be applied. After that, your umbrella coverage will kick in to cover the remaining damages (up to your policy limits) without the need for an additional deductible.
Whether you have assets that you need to protect or simply want additional peace of mind, umbrella coverage can further cover you from personal liability in a number of different situations. This supplemental insurance can be added to your homeowners, renters, or even auto policies, giving you an affordable way to protect yourself and the life you’ve worked to build.
Umbrella insurance should be a consideration for anyone with a high net worth, or whose existing liability coverage isn’t enough to protect their assets. If you’re interested in building a policy with umbrella insurance added, or even bundling multiple policy types to save more, let Gabi help in your search! After linking your current auto insurance policy, simply ask your Gabi agent to help find the best deal on your umbrella coverage, too.