Umbrella Insurance: Who's Covered?

Umbrella insurance is a type of personal liability insurance that covers claims in excess of regular homeowners, auto, or watercraft policy coverage. It is a low-cost way to get significant extra liability coverage. It covers not just the policyholder but also other members of their family or household. It is quite cheap compared to other types of insurance. The cost of an umbrella liability policy depends on how much coverage you purchase, the state where you live, and the risk that insuring you presents to the insurance company. The Insurance Information Institute says that most $1 million policies cost $150 to $300 per year. You can expect to pay about $75 more per year for $2 million in coverage and another $50 per year for every extra $1 million in coverage beyond that.

Who needs umbrella insurance?

Umbrella insurance is an optional form of insurance designed to supplement existing coverage. It is a type of insurance coverage that extends the liability insurance from an auto or homeowner’s insurance policy to cover more situations with higher limits. 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.

Umbrella insurance is particularly useful for people with a high net worth who want to protect their assets and future earnings. If your net worth is higher than the limits of your auto or homeowner's insurance, then umbrella coverage might be a good investment. This is because the more you have, the more you have to lose, and normal insurance policies might not provide enough coverage.

Umbrella insurance is also useful for people who engage in activities that could increase their chances of facing a lawsuit. This includes people who:

• Serve on a charitable board
• Have kids living at home
• Have a swimming pool, pond, or trampoline
• Have dogs, horses, or other large animals
• Manage a family trust
• Host large parties at home
• Employ household staff
• Own rental properties
• Have a high public profile

Umbrella insurance is also a good idea for people who want to protect their future earnings. For example, if you are a medical student, you should consider your future earning potential when deciding whether to purchase umbrella insurance.

How much does it cost?

The cost of umbrella insurance varies depending on several factors, including the amount of coverage, the number of homes and vehicles, and the policyholder's location and net worth.

Umbrella insurance policies typically start at $1 million in liability coverage and can cost between $150 and $500 per year. According to an ACE Private Risk Services report, the average cost of a $1 million personal umbrella policy is $383 per year for an individual with one home, two cars, and two drivers. This price can increase by $75 for every additional $1 million in coverage.

The cost of umbrella insurance may also be influenced by factors such as the policyholder's motor vehicle history, previous homeowners insurance claims, and the number of homes, automobiles, and other vehicles owned.

Umbrella insurance is generally considered to be relatively inexpensive, especially when compared to the amount of liability coverage it provides. It is designed to safeguard an individual's wealth and assets in the event that the liability limits on their vehicle and homeowners' policies have been exceeded.

What does it cover?

Umbrella insurance covers a wide range of situations that extend beyond the scope of normal liability insurance. It can be broken down into three broad categories: bodily injury liability, property damage liability, and other personal liability.

Bodily Injury Liability

Umbrella insurance covers the cost of injuries to another person, including medical bills and liability claims resulting from injuries caused by a car accident where the policyholder is at fault, a pet owned by the policyholder, or an accident involving a guest in the policyholder's home.

Property Damage Liability

This type of insurance covers the cost of damage or loss to another person's tangible property. This includes damage to vehicles and other property resulting from a car accident where the policyholder is at fault, claims incurred in connection with damage caused to the property of others, and accidental damage caused to school property by a child.

Other Personal Liability

Umbrella insurance also covers other actions that a policyholder could be sued for, such as slander, libel, false arrest, detention or imprisonment, malicious prosecution, and mental anguish or shock. It also covers legal defence costs for covered losses.

In addition to these categories, umbrella insurance can also provide coverage for incidents that occur outside the United States and certain rental items that are not typically covered by standard insurance policies, such as boats.

It is important to note that umbrella insurance does not cover the policyholder's own injuries or property damage, criminal acts, written or oral contracts, intentional acts or injuries, or damage due to nuclear radiation, war, or terrorism.

What doesn't it cover?

Umbrella insurance is a type of insurance that supplements your existing insurance policies, such as auto or homeowner's insurance. It provides additional liability coverage for situations that may not be covered by your current insurance policies, such as libel or slander. However, it's important to note that umbrella insurance does not cover everything. Here are some things that umbrella insurance typically does not cover:

• Your own injuries or property damage: Umbrella insurance covers liability for injuries to others or damage to their property, but it does not cover damage to your own home, car, or possessions.
• Business-related activities: Umbrella insurance is typically for personal use and does not cover any liability related to your business or profession. You would need to purchase a separate business policy with liability coverage or a commercial umbrella policy.
• Exposures not covered by your underlying policies: Umbrella insurance typically does not cover exposures that are not covered by your existing insurance policies. For example, if you have excluded certain dog breeds or recreational vehicles from your homeowner's insurance, they would also be excluded from your umbrella policy.
• Criminal or intentional acts: Umbrella insurance does not cover liability arising from criminal or intentional acts, such as intentional injury to others.
• Breach of contract: Umbrella insurance does not cover liability arising from the breach of a written or oral contract.
• Nuclear radiation, war, or terrorism: Most umbrella insurance policies do not cover damage or injuries caused by nuclear radiation, war, or terrorism.
• Communicable diseases: Umbrella insurance does not cover lawsuits arising from communicable diseases, such as herpes.

How does it work?

Umbrella insurance is a type of personal liability insurance that provides coverage for claims that exceed the limits of your regular insurance policy. It is designed to protect your assets and your future by providing additional coverage when your homeowners, auto, and boat insurance policies reach their limits. It also covers claims that may be excluded by other liability policies, such as false arrest, libel, slander, and liability coverage on rental units you own.

Umbrella insurance typically provides coverage for personal liability situations, bodily injury to others, property damage to others, and the legal costs associated with defending yourself in lawsuits related to these issues. It covers not just the policyholder but also other members of their family or household. It is important to understand how your policy defines a household member to ensure you have the necessary coverage.

Umbrella insurance does not cover damage to the policyholder's own property or injuries to the policyholder. It also does not cover criminal or intentional actions that cause damage to someone else, liability assumed under a contract, or liability related to war or armed conflicts.

When purchasing umbrella insurance, it is important to consider the total value of your assets and the potential future income loss. The coverage amount should generally align with your net worth, including the value of your taxable assets, homes beyond your primary residence, and potential future income.

Umbrella insurance is relatively inexpensive, with $1 million in coverage typically costing between $150 and $500 per year. The cost depends on factors such as the amount of coverage, the number of homes and vehicles owned, and the number of household members covered.

Frequently asked questions