Is It Worth Having an Umbrella Insurance Policy?
In 2019, the net premiums written by the United States insurance industry equaled a staggering $1.32 trillion. This statistic shows just how seriously Americans take different types of insurance, from property and casualty insurance to life and annuity coverage.
One type of insurance whose popularity has been on the increase in recent years is umbrella insurance. But exactly what is an umbrella policy? More importantly, how does umbrella insurance work, and who needs it?
If you’re asking yourself this question, you’ve come to the right place. In this comprehensive article, we tell you all you need to know about umbrella insurance so you can make an informed decision.
What Is Umbrella Insurance?
Umbrella insurance is a type of personal insurance that covers claims that are in excess of the regular homeowner’s insurance, auto insurance, or watercraft policy coverage.
This type of insurance can also cover specific liability claims that most other policies do not, including slander, false imprisonment, and libel. For those who own rental property, an umbrella insurance policy can offer liability coverage beyond what your renter’s insurance policy covers.
Umbrella insurance offers protection for you, your family, and other members of your household.
How Does Umbrella Insurance Work?
You already know that umbrella insurance provides coverage beyond what your regular insurance policy does. Below is an example of how this works.
You cause a road accident where six cars are damaged. Your auto insurance property damage policy isn’t high enough to replace all the vehicles damaged in the accident. Neither can your personal liability coverage pay for all the medical bills of the people injured in the accident.
That’s where your umbrella insurance coverage comes in. This insurance can pick up where your auto insurance coverage and personal liability policy leave off.
As we’ve already pointed out, umbrella insurance doesn’t cover just the policyholder. It also protects family members and others in your household. That said, it’s important to understand your policy’s definition of household members, so you have the coverage you require.
A major benefit of umbrella insurance is that it doesn't cover only incidents that involve your vehicle or property. Policyholders are covered worldwide, except where the cars or homes involved are under other country’s laws.
Who Needs Umbrella Insurance?
Like in all other insurance policies, there’s a fear factor involved in deciding to purchase umbrella insurance. One of the top reasons people buy umbrella insurance is that the United States is an increasingly lawsuit-happy country. You’ve certainly heard many personal liability horror cases where the jury awarded millions of dollars to victims that the accused had to pay.
When purchasing an umbrella insurance cover, ask yourself how likely you are to encounter such a situation. Generally, if the overall value of your assets, including your home equity, retirement and investment accounts, and ordinary savings account is higher than the limits of your homeowner’s and auto insurance cover, you may need umbrella insurance.
The idea is to have ample liability insurance to cover your assets fully. This way, you don't lose your assets in a lawsuit.
Anyone can be sued. Therefore, buying umbrella insurance is a sensible move for everyone. The added peace of mind you get from having the cover makes it worth the investment.
That being said, the need for umbrella insurance may be greater for some people than others. For instance, people who engage in activities that put them at higher risk of incurring extra liability are better candidates for this type of insurance.
The Cost of Umbrella Insurance
So how much does an umbrella liability policy cost? It depends on a few factors, including the state you live in, the amount of coverage you purchase, and the risk insuring you present to the insurer.
The more cars or homes you have, the more your cover will cost. The price also increases if you have more members in your household included in the policy.
Once you receive your umbrella insurance quote, you’ll notice that the policy seems cheaper than other insurance policies you have.
But why is umbrella liability coverage so cheap? One of the reasons is that people who purchase this type of coverage already have plenty of auto and homeowner’s insurance cover. Many insurers require that you carry the maximum liability coverage under your auto and homeowner’s policies before purchasing an umbrella policy.
On average, expect to pay between $150 and $400 annually for a $1 million umbrella insurance policy.
What Umbrella Insurance Covers
The best thing about umbrella insurance is that it offers broad coverage. The policy covers any incident that’s not explicitly excluded under the coverage. Here are a few specific things covered under this type of insurance.
Did your neighbor’s child break their arm on your son’s trampoline? Did your dog bite a visitor? Your umbrella insurance should be able to cover any medical bills or lawsuits arising from such incidents that exceed your homeowner's insurance limits.
Supposing you injured a person’s reputation, either over social media or in person, you may be sued for slander, defamation, or libel. Your umbrella insurance covers you in case you lose such a lawsuit.
You hit someone else’s car or property and caused damage. If repair costs exceed the limits of your auto insurance cover, umbrella insurance can kick in and cover those extra costs.
You’re facing a lawsuit and decide to hire a lawyer to defend you in court. Umbrella insurance can cover the costs of legal representation.
What Does Umbrella Insurance Not Cover?
Of course, no type of insurance can cover everything on the planet. There are incidences where your umbrella insurance will not protect you. These include:
- Damages you make to your personal property
- Damage or injury you commit on purpose
- Flood damage
- Injuries to contracted workers
In the event of these incidences, you’ll need to seek alternative ways to pay for the repair or medical costs.
Umbrella Insurance Can Make a World of Difference
Hopefully, you now have the answer to the question: how does umbrella insurance work? More importantly, it’s clear why this type of insurance is beneficial in today’s litigious society. Umbrella insurance can protect you where your regular homeowner’s and auto insurance can’t.
Would you like to read more content on personal liability insurance? Please keep visiting our blog.