Umbrella Insurance: What It Is and How Much You Need

Millionaires have more to lose if they're sued for liability than us regular-income folks. Both economic classes, however, can benefit from extra liability coverage through an umbrella insurance policy.
Wealthy people often buy these policies because they're usually sold in increments of $1 million.
However, homeowners with lower incomes may want extra coverage if their standard insurance plans don't offer enough coverage for their assets.

Understanding the basics of umbrella insurance

Umbrella insurance doesn't sound sexy, but it protects against liability claims and goes above and beyond any homeowners or auto insurance policy you already have.
If your dog bites someone or a person trips on your cracked sidewalk and injures themselves, umbrella insurance can help. It's usually used as extra protection from liability lawsuits if you're at fault in an accident or someone is injured.
By definition, liability is when you are responsible for something harmful. Someone can sue you beyond what your traditional insurance covers. Take a look at your assets and net worth — does your insurance coverage protect all your assets? If not, a liability suit could take your assets from you. Your home may be worth more than you think, for example. Savings and retirement accounts are also assets and could be sought in a liability lawsuit.
Umbrella insurance follows you anywhere in the world. Get into a ski accident in the Swiss Alps and injure someone? Your umbrella policy covers you. Umbrella insurance provides additional liability coverage that your other policies don't and gives you peace of mind.

Umbrella coverage terms

Umbrella insurance goes above and beyond what your traditional insurance covers. Here's how it provides additional liability protection:

Bodily injury liability

A pool in your backyard and a broken fence that neighborhood kids can get through to jump into your swimming pool while you're gone and then drown is an example of what could be a huge liability problem.
Less severe incidents like a dog biting your neighbor, a child gets hurt on a trampoline at your son's birthday party, or a friend falling in your house could lead to liability claims where you are sued for medical bills. This is where bodily injury liability coverage comes in, which is included in your umbrella policy.
Bodily injury can also be due to a serious at-fault car accident. Being the parent of a teenage driver may be reason enough to get extra insurance. Or maybe you drive a snowmobile in the winter and could hit someone. Or you're not too careful driving the golf cart you're renting and breaking someone's leg. They're all reasons to need umbrella insurance.

Property damage liability

This insurance covers damage to another person's property, which could be your neighbor's home should a tree from your yard crash into it or a car accident where you total another driver's vehicle.

Landlords

Do you own rental property? If so, you are subject to additional liability. If someone slips on the sidewalk due to ice you didn't clear, or a tenet's dog bites someone, and they don't have coverage, you can be sued.

Additional coverage

Umbrella insurance does cover the same things as home and auto policies, but there are some areas that could result in liability lawsuits both do not cover, including:
  • Libel, slander, or defamation of character
  • Driving abroad
  • Operating rented watercraft
  • False arrest
  • Malicious prosecution
  • Shock or mental anguish

What is not covered by umbrella insurance?

For all the many holes umbrella insurance fills, it does not cover:
  • Damage to your personal property or your belongings. These fall under your renters' or home insurance policies.
  • Liability you assume under contract.
  • Any damage that was intentional or criminal.
  • A business
  • Jet skis or all-terrain vehicles. These fall under your car insurance policy.
  • Aircraft
  • People working on your property, including housekeepers and other domestic employees. They are covered by their employers, hiring agencies, or self-business insurance under workman's comp.
  • If you're injured. This falls under your medical insurance.

How much does Umbrella Insurance cost?

Since umbrella insurance coverage only starts when the liability limits of your homeowner's insurance and auto policies leave off, it's relatively cheap.
Usually sold in $1 million increments, it costs about $150 to $350 per year for the first $1 million of coverage and about $100 for every $1 million in coverage after that.
Rates vary by state and how many homes, cars, and boats you're insuring.

Liability coverage you'll need first

Before getting an umbrella policy, the Insurance Information Institute finds insurers require you to have at least $250,000 in auto insurance for bodily injury to one person, $500,000 per accident, and at least $300,000 in liability coverage in your homeowners' insurance offer you coverage.
Most insurers sell up to $500,000 or $1 million in home and auto liability coverage. An umbrella policy can be cheaper for that extra coverage after buying the minimum required.
Many insurers require policyholders to buy umbrella insurance and their regular home and auto policies from them. One upside is that having all of your insurance with one company will typically get you a 10-15% discount off the annual premiums. Larger deductibles can also lower the prices.
Suppose your home and auto policies are from separate insurance companies. In that case, it can be more worthwhile to buy an umbrella from your auto insurer because most large lawsuits involve auto accidents.
If your current insurer does not sell you an umbrella policy because you have too many risks, then look for an independent agent representing multiple insurers to help you find a "stand-alone" umbrella policy. Risk factors can be having a dog breed associated with a high claims history or having too many car accidents.

How much Umbrella Insurance do you need?

The best answer to this is to add up your assets. If everything you own, including savings and retirement accounts, adds up to worth more than $1 million, then that's the minimum umbrella policy you need.
If you own a few fancy cars and recreational toys and a large house, then you may need $2 million or more in extra coverage.
However, if you don't own a home and have way less than $1 million in assets, you probably don't need umbrella insurance.
But hopefully, you'll get enough assets to need it one day. That's a good problem to have.

Best Umbrella Insurance companies

When it comes to finding the right liability policy, these companies excel:

Chubb

Chubb provides more than $100 million in coverage along with legal expenses, providing high liability limits for excess liability insurance. Not only do you have the financial coverage, but Chubb also provides courtroom protection by financing defense costs and providing legal counsel.

Liberty Mutual

Liberty Mutual provides more than $1 million in coverage for you and everyone in your household, so if you make a mistake, your partner won't be penalized.

Travelers

With more than $10 million in coverage through its policies, Travelers also provides: Extra liability coverage and defense costs. Attorney fees. Other charges that come with a lawsuit in the United States or abroad.

USAA

Military members can receive up to $1 million in umbrella coverage as low as $19 per month through USAA. You have to have auto insurance through USAA to obtain coverage.
You can also to a site like Gabi, which provides online quotes of all the big insurance companies providing personal umbrella insurance. The site can give you insurance quotes within minutes.

The bottom line

In our litigious society, having liability insurance doesn't just provide you peace of mind. Your personal liability coverage saves your finances, your retirement accounts, your children's inheritance, your home... can you put a price tag on that?

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