Umbrella insurance is a type of personal liability insurance that can save you from financial ruin when you find yourself liable for a claim larger than your homeowner’s insurance or auto insurance will cover. It’s basically extra insurance that provides protection beyond existing limits and coverages of your other policies. Umbrella insurance can provide coverage for injuries, property damage, certain lawsuits, and personal liability situations.
“An umbrella policy should at the very least cover the value of your assets, as this is what you stand to lose in a lawsuit,” said Dan Thompson, Raleigh insurance agent and founder of Dan Thompson Agency. “My clients usually get personal liability insurance that’s at least as much as their net worth.”
This type of personal liability insurance provides broad coverage for the whole household, not just the policy holder, for claims in excess of regular homeowners, auto, or watercraft policy coverage. Umbrella policies are commonly available from insurers that also sell auto, home and watercraft insurance.
What Does Umbrella Insurance Cover?
Basically, umbrella policies are designed to help protect you from the costs of covered claims when those costs exceed the limits of your home insurance or auto insurance policies.
“Umbrella policies are so inexpensive because they only kick in after you’ve used up your liability coverage under your auto or home insurance policy,” added Thompson. “It’s built for more unlikely, catastrophic claims.”
An umbrella policy can help cover defense costs when you are being sued for damages to someone else’s property or injuries caused to others in an accident. This includes legal defense costs like attorney fees and other charges associated with lawsuits.
Umbrella insurance generally provides liability coverage for:
- Damage to property
- Certain lawsuits
- Personal liability situations
What is NOT Covered By Umbrella Insurance
While umbrella insurance coverage covers injury to others, or damage to their possessions, it does NOT protect the policyholder’s property. So damage to your own property, including your home, car or possessions, or damage you or a family member caused on purpose, would not be covered. It will only cover you if you’re held responsible for damage to someone else’s property. You will need to double check with your insurance agent to make sure you have enough homeowner’s insurance to protect your own property and possessions.
An umbrella policy generally does not provide coverage for:
- Your own injuries or damage to your personal property
- Criminal Acts such as intentional action causing damage to someone else
- Any liability you assume under a contract
The main purpose of your umbrella policy is to protect your assets from an unforeseen event, such as a tragic accident in which you are held responsible for damages or bodily injuries.
Who Needs Umbrella Insurance?
Many folks need umbrella insurance and may not even realize it. Ask yourself if you are at risk of being sued. Do you have teenaged drivers or are you on the road a lot more than an average driver? Do have substantial wealth that could make you a target for lawsuits? If you engage in some activity that puts you at greater risk of incurring excess liability, then you’re a good candidate for an umbrella policy.
More factors that indicate you could use umbrella insurance include:
- You own property and are a landlord
- You have significant savings or other assets
- You drive a luxury car
- You have an inexperienced teenaged driver in your household
- You own things that can lead to injury lawsuits such as pools, trampolines, guns, or dogs
- You drive a lot more than average people
- You often host large parties
Personal liability risk factors include owning property, renting it out, employing household staff, having a trampoline or hot tub, etc. The more likely you are to be sued, the more strongly you should consider purchasing umbrella insurance. It’s a small price to pay for the extra peace of mind.
Here are some examples of when umbrella insurance can be used:
- Your teenage son gets into a car accident, and the cost of injuries to other drivers is above your auto insurance liability limit.
- A houseguest falls down your stairs and sues you for her medical bills plus pain and suffering, exceeding your homeowners insurance liability limit.
- A tenant suffers injuries or property damage and you are the landlord.
Why is Umbrella Insurance so inexpensive?
Umbrella insurance is quite cheap compared to other types of insurance, especially considering how much coverage it provides. The Insurance Information Institute says most $1 million policies cost around $150 per year.
Why is umbrella insurance so cheap? It’s partly because you have to carry plenty of homeowner’s and auto insurance before an insurance company will issue you an umbrella policy. There’s also no deductible as you’ll pay the deductible on your homeowner’s or auto insurance first and then you won’t have to pay the deductible again when your umbrella insurance kicks in.
According to North Carolina Department of Transportation (NCDOT), every driver must have auto insurance to operate a vehicle. For bodily injury liability coverage, the minimum legal requirement is $30,000 per person and $60,000 per accident. Hospital bills can add up in a major accident and can quickly exceed these amounts. That’s where your umbrella insurance will come in handy and possibly save your assets.
Umbrella insurance covers not just the policyholder, but also other members of their family or household. So, if your teenager isn’t the most-experienced driver, you can sleep better at night knowing your umbrella policy will cover the injured parties’ medical bills if your child is found liable for a major accident.
While it’s not as common to find yourself in a devastating situation that would require umbrella insurance, it’s still smart to have it in order to protect yourself against major financial loss. Ultimately, umbrella insurance protects you from losing everything in a lawsuit. In addition to providing that extra layer of protection for your assets, it will also give you peace of mind.