You likely have insurance coverage for your home, auto, and other important assets. But what happens if a major accident or lawsuit exceeds the limits of those policies? That is where an umbrella policy comes in.
Umbrella insurance provides an extra layer of liability protection beyond your existing policies. It is designed to help protect your savings, home, and future income if you are found responsible for a costly claim.
Here is what you should know about umbrella policies and whether one may make sense to you.
What Is an Umbrella Policy?
An umbrella policy is a type of personal liability insurance that sits on top of your existing coverage, such as your homeowners and auto insurance. When the liability limits on those policies are exhausted, an umbrella policy can help cover the remaining costs, up to the umbrella policy limit.
Umbrella policies typically start at $1 million in coverage and can often be increased in increments depending on your needs.
This additional protection can help cover:
- Bodily injury claims
- Property damage claims
- Legal defense costs
- Lawsuit and settlements
- Certain personal liability situations not covered by standard policies.
Because large claims can quickly add up, umbrella coverage is designed to protect against worst case scenarios.
How an Umbrella Policy Works
Imagine you are involved in a serious auto accident and are found at fault. Multiple people are injured and the total damages reach $750,000. If your auto policy has a liability limit of $300,000, you could be responsible for the remaining $450,000.
With an umbrella policy, that additional amount may be covered, helping protect your personal assets from being used to pay the difference.
Umbrella coverage can also help with situations such as a guest slipping and falling on your property, a dog bite involving your pet, property damage caused by you or a family member, or a liability claim related to rental or vacation properties. These types of incidents may seem unlikely, but they happen more often than many people realize.
What Does an Umbrella Policy Typically Cover?
Umbrella policies typically extend liability protection across multiple areas of your life, including your homeowner’s liability, auto liability, rental property liability, and personal liability claims.
Some policies may also provide coverage for situations such as libel or slander claims, false arrest or wrongful eviction, and certain personal liability claims that may not be included in standard policies.
Coverage can vary so reviewing the details with your independent insurance agent is important.
What An Umbrella Policy Does Not Cover
While umbrella policies provide broad protection, they do not cover everything. For example, umbrella policies typically do not cover:
- Damage to your own property
- Your own injuries
- Business related liability, unless specifically endorsed.
- Intentional acts
- Professional liability claims
An umbrella policy is designed specifically for liability protection, not for property coverage.
Who Should Consider an Umbrella Policy?
Even if you do not consider yourself high risk, accidents can happen unexpectedly. Umbrella coverage may be worth considering if you:
- Own a home
- Have significant savings or assets
- Own multiple vehicles
- Have a teen driver in your household
- Own a rental property
- Frequently host guests or gatherings
- Participating in activities that may increase liability risk
An umbrella policy can help provide additional peace of mind and protect all for which you have worked.
Umbrella Coverage Is Often More Affordable Than Expected
One of the biggest surprises about umbrella insurance is the cost. Since umbrella insurance provides secondary coverage, the coverage is often relatively affordable compared to the amount of protection they offer.
For many households, a $1 million umbrella policy may cost less than expected, making it a practical option for additional financial protection.
Protecting What You Have Worked Hard to Build
A serious accident or lawsuit can have long lasting financial consequences. Umbrella insurance helps provide an extra layer of protection for your home, savings, and future earnings.
Reviewing your liability limits and considering an umbrella policy can help ensure you are protected beyond your standard policies. A quick conversation with your insurance professional can help determine whether umbrella coverage is right for your situation.
Having the right protection in place today can help safeguard your financial future tomorrow.