Umbrella insurance, like its name suggests, is extra insurance that can help cover you from anything that might come your way. Umbrella insurance is mostly used as extra liability insurance in the event you were sued for an incident on your property or a car accident. Umbrella insurance isn’t a necessity in every person’s case, but it can be a good idea for certain individuals who are higher risk or have a high net worth.
On this page:
- What is umbrella insurance?
- What does umbrella insurance cover?
- Who needs umbrella insurance?
- How much does umbrella insurance cost?
Umbrella insurance is a type of supplemental insurance meant to protect you and your belongings from any large claims that might exceed your coverage limits in your insurance policy. It can also serve to cover any extra liability costs, like a lawsuit, that could potentially occur. If your claim costs go over your coverage limits and you don’t have umbrella insurance, you will be responsible for paying for the rest of the repairs needed, no matter if it was your fault or not.
Umbrella insurance acts as extra liability insurance for you in case anything extreme were to happen, whether it be extensive damages or a lawsuit. Umbrella insurance can be supplemental to both auto and homeowners insurance, and it can be a big help in the event that your claim exceeds the coverage you have on one of those policies
Umbrella insurance generally covers you from the following incidents:
- Personal liability situations
- Covered lawsuits, such as libel, slander or defamation cases
- Injuries to others
- Property damage of others
As an example, take a car accident you’re found at fault for that results in $400,000 in injury costs to the other driver and their passengers. If you had a $300,000 bodily injury liability limit on your car insurance policy, your auto insurer would cover the first $300,000 but you’d be responsible for the $100,000 difference. If you had an umbrella insurance policy, your umbrella insurance would cover the $100,000 that exceeds your car insurance policy limit.
There are several reasons why a person would want to buy an umbrella insurance policy in addition to their homeowners insurance policy. The liability portion of your homeowners insurance only covers up to the limit in your policy, and umbrella insurance provides additional liability coverage.
Umbrella insurance for car insurance policies is similar to umbrella insurance for homeowners insurance policies. If you were to get into a car accident that you were found at fault for, you run the risk of being sued for damages and injuries.
Here are a list of reasons you may need to purchase umbrella insurance:
- If you own things like pools, trampolines, or other recreational items that increase your risk of injury, or getting sued because of an injury.
- If you own dogs, especially certain breeds that are considered higher risk by insurance companies, umbrella insurance can help protect you in the case of a bite. Note: Check to make sure your breed is covered by your insurance company.
- If you have a home office and often bring clients in your home, umbrella insurance can help prevent lawsuits from any injury they may have while on your property.
- If you’re someone well known in the public or have a higher net worth, you’re more likely to be sued in the event that someone is injured on your property. Having umbrella insurance can help cover any legal costs for the lawsuit.
- Umbrella insurance will also protect you from libel and slander in the event you were sued for either.
Umbrella insurance can also help to cover any extra associated costs of a homeowners insurance claim outside of just liability insurance. For example, if your repairs go over your coverage amount, umbrella insurance will kick in and help to cover the rest of the cost, up to your umbrella policy limit.
Umbrella insurance costs between $150 and $300 annually, on average, for a $1 million personal policy, according to the Insurance Information Institute. An additional million dollars in coverage will cost $75 per year and each additional million will cost about $50 per year, according to the III.
In order to buy a $1 million umbrella insurance policy, most insurance companies will require you have a minimum amount of liability protection on your car and homeowners insurance. This is because the umbrella insurance won’t kick in until after you’ve exceeded the liability limits on the policy. You’ll typically need $250,000 of liability insurance on your car insurance policy and $300,000 on your homeowners insurance policy.
If you decide umbrella insurance is a smart purchase for you, it’s important to find a company that’s a good fit for you. By ensuring you’re working with the right company for your umbrella insurance needs, you’re making sure you’re protecting not only your property, but yourself, in the event of a lawsuit or other extreme situation. Check out Clearsurance’s rankings of best car and home insurance companies to see which one consumers are most happy with before you buy your umbrella insurance policy.
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