The chances of losing a lawsuit for an amount higher than what your existing insurance would cover are small, but if you ever find yourself in that scenario, you might lose everything you own. Umbrella insurance is meant to keep you from ever having to experience that horror. We are an independent insurance agency, and we’ll take a deeper look at how umbrella insurance policies work, who needs it, how much it costs, and what it won’t cover in the sections below.
Key Takeaways
- Umbrella insurance is a form of personal liability insurance that covers claims in addition to the coverage provided by a homeowner’s, vehicle, or watercraft policy.
- Umbrella insurance protects not only the policyholder but also additional family members or household members.
- Umbrella insurance protects others against injury or damage to their property, but not the policyholder’s property. In comparison to other forms of cyber liability insurance, umbrella insurance is relatively affordable for businesses as well. Umbrella insurance also covers health insurance for small business owners.
What Is Umbrella Insurance and How Does It Work?
Umbrella insurance is a form of personal liability insurance that might come in handy if you’re held responsible for a claim that exceeds the limits of your homeowner’s or business auto insurance. If you own a boat, umbrella insurance will cover the gaps left by your vessel’s liability insurance.
Libel, defamation, and false imprisonment are just a few of the liability claims that umbrella insurance may cover. In addition, if you own rental property, umbrella insurance extends your liability coverage beyond your renter’s policy.
What Is an Umbrella Policy and How Does It Work?
If your homeowner’s insurance or vehicle insurance weren’t adequate, an umbrella policy might cover the following incidents:
Your dog bolts from home and violently attack a passing neighbor out on a stroll. Your neighbor files a lawsuit against you for medical expenses, lost earnings, and pain and suffering.
You cause a ten-car collision, and your auto insurance property damage coverage is insufficient to replace the cars of all ten accident victims. Your personal liability coverage is also insufficient to cover your medical expenses.
For a field trip lunch, you send sandwiches to your son’s school. Several pupils get food sickness, and their parents file a lawsuit against you.
While you’re out of town, your teenager arranges a party at your place. Someone brings booze to the party, and on the way home, one of the attendees gets detained for drunk driving. You’ve been sued.
Umbrella insurance protects not just the insured but also additional members of their family or home, as you can see from these instances. So, if your adolescent isn’t the best driver, you can rest easy knowing that your umbrella insurance will pay the medical expenses of the affected parties if your teen is judged to be at fault in a big accident. However, make sure you understand how your insurance defines a household member to ensure you receive the coverage you require.
You may have also noted that, while umbrella insurance provides coverage in addition to your homes and auto insurance, the event does not have to occur on your property or in your vehicle for it to be covered by your umbrella insurance. You’re also protected internationally, with the exception of residences and automobiles owned under the laws of other nations.
Is Umbrella Insurance Necessary?
The choice to get umbrella insurance is undoubtedly fraught with anxiety. Many insurance firms argue that you need it since we live in a litigious society where anybody may sue you for anything and financially ruin you. Personal responsibility horror stories abound in the headlines, with juries awarding multimillion-dollar verdicts to victims that individuals were forced to pay. However, how often do you find yourself in a position like this? Is umbrella insurance really necessary?
As a general guideline, if the entire worth of your assets, including regular checking and savings accounts, retirement and college savings and investment accounts, and home equity, exceeds the limitations of your auto or homeowner’s liability, you should consider purchasing umbrella insurance. The concept behind this advice is that you should have adequate liability insurance to cover all of your assets so that you don’t lose them in the event of a lawsuit.
An Example of Umbrella Insurance in Action
Let’s assume your homeowner’s insurance policy has a $300,000 personal liability limit. One of your visitors slips and falls on your ice front stairs while you’re hosting a huge Christmas party. She suffers a concussion and exorbitant medical costs as a result of your actions, and she chooses to sue you. In court, the jury rules in favor of your party attendee, awarding her a $1 million judgment. This judgment exceeds the liability limit of your homeowner’s insurance by $700,000.
You’ll have to pay the $700,000 out of pocket if you don’t have a personal liability umbrella. The funds will have to come from your primary source of savings, your retirement account. The loss is catastrophic, and you’ll have to work for another ten years, find a higher-paying career, or dramatically reduce your spending to refill your funds and get back on schedule to retire.
However, if you have $1 million in umbrella insurance, your umbrella policy will pay the amount of the judgment that your homeowner’s insurance won’t, allowing you to keep your retirement funds. Any legal costs and other lawsuit-related expenditures not covered by your homeowner’s insurance will be paid by the umbrella policy. This is in addition to the $1 million in coverage.
What Is the Cost of Umbrella Insurance?
The cost of an umbrella liability policy is determined by the amount of coverage you acquire, the state in which you reside (insurance rates vary by state), and the risk you pose to the insurance provider. The more residences or automobiles you possess, as well as the number of household members covered by your insurance, the more it will cost.
However, when compared to other forms of insurance, umbrella insurance is fairly affordable, especially given the amount of coverage it provides. Most $1 million plans, according to the Insurance Information Institute, cost $150 to $300 per year. You may anticipate spending an extra $75 per year for $2 million in coverage and another $50 per year for each additional $1 million. Umbrella liability plans from most insurance providers start at $1 million in coverage, with greater amounts available.
Investing in Umbrella Insurance
If obtaining an umbrella policy or expanding your coverage is too costly, you may be able to acquire endorsements to your vehicle or home insurance that extend your liability limits above the standard maximums. You won’t receive as much coverage as you would with an umbrella, but you’ll be more protected than you were before.
What Isn’t Covered by Umbrella Insurance?
Umbrella insurance has the advantage of providing wide coverage. Unlike certain insurance plans, which only cover particular incidents, they cover any incident not expressly excluded by the policy. However, no insurance coverage can cover every eventuality. The following are some things that your umbrella coverage is unlikely to cover:
You have caused damage to your own property. Remember that because it’s liability insurance, it’ll only pay out if you’re proved liable for damage to someone else’s property. Check to see whether you have enough homeowner’s insurance to cover your own home and belongings.
Damage caused on purpose by you or a covered member of your household. Umbrella insurance (and your homeowner’s insurance) would not cover the expenses of a lawsuit or judgment if you purposefully shoved a party attendee down the stairs.
Liability accrued as a result of one’s professional or business activity. To cover these occurrences, you’ll require company liability insurance.
You agreed to bear liability as part of a contract you signed.
War or armed conflict-related liability. You’ll have a hard time obtaining any form of insurance that covers war-related damages; the financial losses that come with conflict are just too great for insurance firms to pay.
Final Thoughts
A personal responsibility case may land even the most cautious individual with the greatest intentions on the hook for a large judgment. Even though you’re unlikely to find yourself in this scenario, it’s still a good idea to safeguard yourself from such a significant financial loss. This is something that umbrella insurance may assist you with.