Everybody makes mistakes, which is why there is a such thing as liability insurance. Liability insurance is the insurance that covers you if you accidentally inflict damage to someone’s property or cause an injury to another person.
But what happens if your liability insurance isn’t enough to cover you in these circumstances? Fortunately, personal umbrella insurance exists to cover you in that department.
Here’s why you might want to consider adding umbrella insurance to your policy if you haven’t already.
How Does Umbrella Insurance Work?
If regular liability insurance is there to cover you when things go south, then you can think of umbrella insurance as being an extra layer of protection. For example, if you get into an accident and are sued for damages that end up costing more than what your liability insurance allows, an umbrella insurance policy will cover what you owe.
Just to be clear, umbrella insurance is not the same as excess liability insurance. While they are pretty similar, many umbrella insurance policies will actually offer coverage in other areas that aren’t typically included in your base plan. Coverage of legal fees and any damages related to false accusations of slander or libel are two added benefits of umbrella insurance.
For instance, let’s say that you are the driver at-fault for an accident that ends up costing a total of $400,000 in damages but your liability coverage only covers up to $300,000. If you didn’t have umbrella insurance, you would end up responsible for paying the remaining $100,000 out of your own pocket. In this scenario, your umbrella insurance would also cover your legal fees if you were to get sued.
What Does Umbrella Insurance Cover?
Umbrella insurance offers an extra layer of protection stretching beyond the limits of your other insurance policies as well as claims that are not eligible for coverage under those other policies. Umbrella insurance is typically useful for:
- Injuries
- Property damages
- Certain types of lawsuits
- Personal liability situations
Bodily injury liability would cover the medical bills and liability claims in the event that you caused damage to another person’s body. Here are some examples of scenarios where bodily injury liability would be applicable:
- You are the at-fault driver in a serious car accident.
- Your dog caused bodily harm to someone.
- A guest gets hurt at your house.
Property damage liability would cover the costs of damage or loss of another party’s property. Note that if you were at-fault in an accident that caused damage to three separate vehicles, your umbrella insurance would cover the cost for all of them.
If you want to make sure that you are protected in case you ever run into certain types of legal fees, umbrella insurance might be worth a look. Umbrella insurance can cover you if you ever find yourself being sued over:
- Libel: an unfavorable written statement.
- Slander: an unfavorable spoken statement.
- False arrest, imprisonment, or detention.
- Malicious prosecution.
- Shock/mental anguish.
As you can see, umbrella insurance can come in handy in a messy situation. However, it is important to keep in mind that umbrella insurance will not cover the following:
- Your injuries and damages resulting in an accident you caused.
- Damages or injuries caused by a criminal or intention action.
- Liability that you are responsible for by contract.
If you are injured following a car accident that you caused, you will need to use your own health insurance coverage to pay for your medical bills. If your car is damaged as a result of the accident, then you will have to use your collision insurance. If you cause an accident that is work-related, umbrella insurance can’t cover you unless you have a commercial umbrella insurance policy.
It’s also important to note that boats are a common exclusion to most umbrella policies. There are some insurance companies that will cover boats as long as they fit a certain size or type. However, many insurance companies are reluctant to cover boats unless you already have a boat insurance policy.
Is Umbrella Insurance Necessary?
Umbrella insurance is not mandated by law. Usually, the policyholders who purchase umbrella insurance either have a lot of assets to protect or they have a high chance of being sued. Umbrella insurance could be worth buying if you:
- Are a property owner.
- Have a large savings or a lot of assets in your name.
- Are concerned about having liability claims filed against you while you are traveling outside of the U.S.
- Own things such as pools, trampolines, firearms, dogs or anything else with a high chance of being involved in an injury lawsuit.
- Are a landlord.
- Have a teen or otherwise inexperienced driver in your household.
- Coach kids’ sports.
- Have a lot of house parties or entertain people frequently.
- Serve on a board for a nonprofit company.
- Regularly post reviews for products and businesses.
- Play a sport where there is a high chance of injuring someone else.
- Are a public figure.
If you resonate with anything on the list above, it might be worth looking into umbrella insurance. Make sure that you ask your insurance agent exactly what it will cover. If you’re unsure which of your assets are covered, make sure to read your policy closely.
How Much Umbrella Insurance Should You Purchase?
If you decide that you are going to buy umbrella insurance, it’s important to purchase enough to cover your net worth in its entirety. It could be overwhelming trying to figure out how much you need, so start by adding up the value of all of your assets. This would include the total value of your properties, savings accounts and investment accounts.
Once you have calculated your assets, take note of the liability insurance that you already have, and then assess how much you would need to cover the remaining balance. It might be worth taking into account any potential income that you may earn in the near future.
Insurance companies usually offer umbrella insurance in million-dollar increments, which means that the cheapest umbrella policy would provide $1 million in coverage. Your next option would be $2 million, then $3 million, and so forth.
How Much Does Umbrella Insurance Cost?
Usually, an umbrella insurance policy with $1 million in coverage will set you back anywhere between $150-$300 per year. This is just an estimate of course, so make sure that you check with your insurance company for their specific rate.
Keep in mind that in order to qualify for umbrella insurance, you may have to increase your existing liability coverage in order to meet the minimum requirements. Overall, the key takeaway when it comes to umbrella insurance is that it typically provides you with a good amount of coverage for the cost.