Umbrella Insurance: Do You Need Extra Cover?

Umbrella insurance is a type of personal liability insurance that can be indispensable when you find yourself liable for a claim larger than your homeowner's insurance or auto insurance will cover. It is a low-cost way to get significant extra liability coverage and can be crucial in protecting your assets and future income if you're sued.

Umbrella insurance covers injury to others or damage to their possessions. It also covers certain liability claims that home, auto, or watercraft policies may not, such as libel, slander, and false imprisonment. It is quite cheap compared to other types of insurance, with the first $1 million of coverage usually being the most expensive and then each incremental $1 million being cheaper.

Whether or not you need umbrella insurance depends on your net worth, lifestyle, and the likelihood of being sued. If you have a net worth of $500,000 or more, umbrella insurance is absolutely necessary. If you have a lot of assets that could be at risk in a lawsuit against you, you need umbrella insurance.

What does umbrella insurance cover?

Umbrella insurance provides extra protection beyond the limits of your other insurance policies, such as auto, home, and watercraft insurance. It covers injuries, property damage, certain lawsuits, and personal liability situations.

Umbrella insurance generally provides liability coverage for:

• Bodily injury: Umbrella insurance can help cover the cost of medical bills and/or liability claims for injuries to another person, whether it's from an at-fault auto accident or an accident in your home (such as a guest falling or a dog bite).
• Property damage: Umbrella insurance can help cover the loss or damage you cause to another's property if the damage exceeds your underlying policy limits.
• Lawsuits: If you are involved in a lawsuit for slander, libel, defamation of character, false arrest, detention, malicious prosecution, or other personal attacks, umbrella insurance can provide coverage for legal expenses.
• Landlord liability: If you own a rental unit, umbrella insurance can help cover liability claims you may experience as a landlord. For example, if a tenant trips on the property and gets injured, umbrella insurance can provide additional coverage if your landlord policy limit is reached.

Umbrella insurance typically does not cover damage to your personal property, intentional or criminal acts, or liability assumed under a contract.

Who needs umbrella insurance?

Umbrella insurance is an extra layer of personal liability coverage for people with a higher net worth. It is added on top of existing home, auto, or renters insurance policies and only comes into effect after the liability limits of auto or home insurance are met. It is a low-cost way to get significant extra liability coverage.

Umbrella insurance is ideal for those with a net worth of over $500,000, as they have more to lose and normal insurance policies won't provide enough coverage. It is also beneficial for those who:

• Own recreational vehicles like Jet Skis or dirt bikes
• Have an inexperienced driver in the household
• Coach kids' sports
• Regularly host parties at home
• Have a pool or a trampoline
• Drive a luxury car
• Serve on a board of a nonprofit
• Regularly post reviews of products and businesses
• Participate in sports where they could injure others, such as hunting or skiing
• Are public figures

Umbrella insurance is also useful for those who want to protect their assets and safeguard their income. It covers claims made against the policyholder for bodily injury to others or damage to others' property. It also covers personal liability claims like libel, slander, defamation of character, and invasion of privacy.

In summary, umbrella insurance is suitable for individuals with significant assets or a high risk of being sued. It provides extra peace of mind and financial protection at a relatively low cost.

How much does umbrella insurance cost?

The cost of umbrella insurance depends on several factors, such as where you live, how much coverage you buy, and your risk profile. Umbrella insurance is usually sold in increments of $1 million, up to $5 million, and the average cost is about $380 per year for $1 to $2 million of protection. The cost can range from $200 on the low end to over $1,000 for a high limit.

The first $1 million of coverage is typically the most expensive, with each additional $1 million being cheaper. For example, the first $1 million might cost $150-$350 per year, and each additional $1 million of coverage might be $75-$150 per year. The Insurance Information Institute (III) estimates that $1 million in umbrella coverage costs around $400 per year. According to III, premiums for $1 million in coverage range from $150 to $300 per year, but can be higher depending on the number of homes, vehicles, and people insured.

You can also get a discount by bundling your umbrella insurance with other policies from the same insurer. For instance, if you buy home and auto insurance from the same insurer, you can typically get a discount of 10% to 15% on your annual premiums, and you may get an additional discount on the umbrella policy.

Umbrella insurance is relatively inexpensive, especially considering the amount of coverage it provides. For a few hundred dollars per year, you can add millions of dollars of extra coverage and gain peace of mind.

What doesn't umbrella insurance cover?

Umbrella insurance is a type of personal liability coverage that protects you from financial ruin if you accidentally cause major injuries or property damage to others. It provides extra coverage beyond the limits of your existing policies, such as car or homeowners insurance. However, it does not cover everything. Here are some things that umbrella insurance typically does not cover:

• Damage to your personal property: Umbrella insurance does not cover damage to your own belongings. For example, if you get into a car accident, umbrella insurance will not pay for repairs to your vehicle. Instead, you would need collision coverage on your auto insurance policy.
• Your own injuries: Umbrella insurance is liability insurance, which means it covers the injuries or property damage of others. It does not cover your own injuries, which would typically be covered by health insurance.
• Business activities: Umbrella insurance usually does not cover business-related incidents. If a client visits you at your home for a business meeting and gets injured, your umbrella insurance (and possibly your homeowner's insurance) will not cover it. You would need specific business insurance coverage.
• Intentional or criminal acts: If you intentionally or criminally cause damage to someone else, umbrella insurance will not cover the damages or legal costs. For example, if you punch your neighbour, your umbrella insurance will not cover their medical bills or any legal consequences.
• Liability from contracts: Umbrella insurance typically does not cover liability stemming from the breach of a contract. For example, if a roofing company sues you because you haven't paid them, your umbrella insurance will not cover it.
• Boats and recreational vehicles: Some umbrella insurance policies do not cover boats or certain types of recreational vehicles, such as dirt bikes or jet skis. You may need additional coverage for these items.

It is important to carefully read the fine print and understand the exclusions and limitations of your specific umbrella insurance policy.

How does umbrella insurance work?

Umbrella insurance is a type of personal liability insurance that provides extra coverage beyond the limits of your regular insurance policy. It covers not just the policyholder but also other members of their family or household. It is relatively cheap compared to other types of insurance.

Umbrella insurance kicks in when you reach the limit of your "base" liability insurance, such as home or car insurance. It covers a wide range of problems and provides funds above and beyond the limits of your other policies. It covers bodily injury to others, property damage to others, and the legal costs to defend you in lawsuits related to these problems. It also covers lawsuits such as defamation, libel, slander, and invasion of privacy. It usually provides coverage that is not found in a base auto or homeowners policy, such as false arrest, imprisonment or detention, and malicious prosecution.

Umbrella insurance doesn't cover damage to your own property or injuries to yourself. It also doesn't cover liability incurred in business or professional activities, liability you agreed to assume under a contract, or liability related to war or armed conflicts.

The cost of umbrella insurance typically starts around $200 per year for $1 million of coverage. It is commonly available from insurers that sell auto, home, and boat insurance. You will generally need to buy umbrella insurance from the company that provides your auto and/or homeowners insurance.

Frequently asked questions