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.

Homeowners with lower incomes, however, may want the extra coverage also if they’re normal insurance plans don’t offer enough coverage for the assets they have.

What Is Umbrella Insurance?

Umbrella insurance doesn’t sound sexy, but it protects against liability and goes above and beyond any home or auto insurance you already have.

If your dog bites someone or they trip on your cracked sidewalk and injure 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.

It covers the same things as home and auto policies, plus a few more that could result in liability lawsuits:

• Libel, slander or defamation of character
• Driving abroad
• Operating rented watercraft
• False arrest
• Malicious prosecution
• Shock or mental anguish

Umbrella insurance follows you anywhere in the world. Get into a ski accident in the Swiss Alps and injure someone? Umbrella insurance covers you.

Common Reasons To Need It

Ski accidents while traveling the world may be rare, but there are more reasons to need umbrella insurance closer to home. Dog bites and uneven sidewalks are just the start.

A pool in your backyard and a broken fence that neighborhood kids can get through to jump into your pool while your gone, and then drown, could be a huge liability problem.

The same goes for a trampoline on your property.

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.

It’s also worthwhile to add up your assets to see if your existing insurance provides enough coverage. 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.

How Much Umbrella Insurance Costs

Since umbrella insurance coverage only starts when the liability limits of your homeowners 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.

The Liability Coverage You’ll Need First

Before getting an umbrella policy, you’ll need at least $250,000 in auto insurance for bodily injury to one person, and $500,000 per accident. Your homeowners insurance must have at least $300,000 in liability 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.

If your home and auto policies are from separate insurance companies, it can be more worthwhile to buy an umbrella from your auto insurer because most large lawsuits involve auto accidents.

If your current insurer won’t sell you an umbrella policy because you have too many risks, then look for an independent agent who represents multiple insurers to help you find a “stand alone” umbrella policy. Risk factors can be things like having a dog breed associated with a high claims history, or having too many car accidents.

Exclusions

Umbrella insurance doesn’t cover everything. Some things will need separate coverage. Here are some things umbrella insurance doesn’t cover:

• A business
• Jet skis
• All-terrain vehicles
• Aircraft
• People working on your property
• Housekeepers and other domestic employees
• If you’re injured or your personal belongings are damaged
• Intentional or criminal acts

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, then 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.