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Why Umbrella Insurance is a Good Idea for a Rainy Day

Your Complete Guide to Umbrella Insurance

You most likely have heard the term “umbrella insurance” but maybe you aren’t entirely clear on what it is, why you might need it, what it covers (and doesn’t), and how much it costs.

We are here to answer all of your questions and help you decide if purchasing umbrella insurance coverage is a good option for you and your family.

Defining Umbrella Insurance

Auto insurance protects you financially should you get in a car accident. Homeowners insurance covers your house and belongings against theft and damage. If you already have both of those insurance policies why would you need umbrella insurance?

Umbrella insurance gives you an additional layer of protection, on top of these other types of insurance. When the limits of your auto or homeowners policy are reached (as can easily happen in liability cases), umbrella insurance kicks in to cover the rest of the claim amount.

Who Should Get It

“You don’t have to be a millionaire to be sued like one,” say many in the insurance industry. Anyone who has significant assets or who may be at risk for a liability suit against them should seriously consider purchasing an umbrella policy.

You are considered to have significant assets if you:

  • Own a home and/or property

  • Have an investment portfolio

  • Have a retirement account

  • Have a net worth of $500,000 or greater (what you own - what you owe = net worth)

You are considered to be at risk for a liability suit if you:

  • Have a teenage driver in your home

  • Own a large-breed dog or one on the insurance “black list

  • Have a trampoline, zipline, or swimming pool

  • Own high-risk vehicles such as ATVs, boats, and snowmobiles

  • Are an independent contractor or are self-employed. This is because you do not have an employer who is responsible for an accident while you are working (although, for proper coverage you may need a separate business policy)

  • Serve on a board of a nonprofit company

Scenarios for Its Use

If you are sued and held liable for an accident, whether it be in your car or on your property, your personal assets will be targeted when your insurance runs out.

In order to pay up, your wages would be garnished, your retirement fund tapped out, and even your home could be taken away. However, if you have plenty of protection through an umbrella policy, then your personal assets won’t be touched.

Here is a typical scenario for which umbrella insurance can save the day:

Your teenager ran a red light and hit a minivan, totaling it and sending a family of five to the hospital where they each required extensive medical intervention. You are sued for $1 million to pay for damages and medical costs. Your auto insurance limit is $300,000 and your homeowners insurance limit is $500,000. That leaves you $200,000 to pay out of your own pocket! But, with a $1 million limit umbrella insurance policy, your personal assets are protected.

What It Covers

An umbrella policy protects you, your family members, and your pets.

For details on a specific policy, you should talk to an insurance agent. Typically, umbrella insurance covers the following:

  • Bodily injury if a car accident is your fault or if someone has an accident in your home or on your property

  • Property damage caused by you or a covered family member to someone else

  • Libel or slander lawsuit if your written or spoken words cause injury to someone else

  • Lawsuits pertaining to false arrest, malicious prosecution, violation of privacy, and other civil charges

  • Legal fees and court costs so you can afford the quality representation you deserve. Even if you are found innocent, legal costs can be substantial

What It Doesn’t

Be sure to read and understand the fine print in your specific policy as there are a few things umbrella insurance doesn’t usually cover:

  • Intentional damage to any person or property

  • Malpractice lawsuits

  • Workers Compensation claims

  • Damage caused by your business or business-related activity (unless you have a specific business clause)

  • Your own medical costs or property damage caused by someone else

How Much It Will Cost You

Purchasing umbrella insurance is quite affordable and well worth the peace of mind it offers. Generally, this is what you can expect to pay for umbrella insurance:

  • For $1 million worth of coverage, your costs will only be $150-$300 per year.

  • For $2 million worth of coverage, you will pay an additional $75 per year (on top of the $150-$300).

  • For each $1 million afterward, your cost is approximately $50 per year.  

One thing for your consideration is that most insurance companies will require you to hold the maximum liability insurance on your automobile and homeowners policies before you can purchase an umbrella policy.

Where to Get More Information

For any questions regarding umbrella or any other type of insurance, contact Insurance Center Associates today. We are happy to help with all of your insurance needs!