When unexpected worst-case-scenarios occur that result in large claims or lawsuits, personal umbrella coverage offers extra protection to what your auto and homeowners insurance policies can provide. But is it necessary? Understanding umbrella insurance is the first step before asking your insurance agent to add it to your policies.
What Is Umbrella Insurance?
Imagine you caused a multi-car pileup and are now responsible for covering the damages for all vehicles and the drivers’ medical bills. Or if someone trips, falls and gets hurt on your property and sues you.
These situations are not common, but they do happen.
Think of umbrella insurance as your emergency parachute, the safety net below your tether and – most obviously – your umbrella in a storm. A raincoat may save you from the usual shower, but when a sudden downpour hits, you are going to wish you had the added protection.
“A [personal umbrella policy] provides an extra layer of security beyond the coverage limits of your auto or homeowners policy,” said Ray Eng, Vice President of Insurance Sales, with AAA Northeast.
For example, if your homeowners insurance policy has a $500,000 liability limit, but a catastrophic accident occurs and you are responsible for $1 million in property damage, legal fees and medical bills, it may cover the remaining $500,000 liability.
Keep in mind that there may be some exclusions and a minimum liability limit on the primary policy required to qualify for an umbrella policy.
Is an Umbrella Insurance Policy Right for You?
With today’s litigious society, protection with high liability limits could be invaluable. At the end of the day, we are all at risk for unexpected accidents and the possibility of getting sued. If you find yourself in a position where you are in over your head, an umbrella policy could save your finances. Financial expert Chris Hogan calls it “your money’s best friend.”
Umbrella insurance covers the policyholder and members of their family or household, which makes it especially practical for homeowners and married couples.
People that live with higher risks could also benefit from the extra cushion. You should consider the excess liability coverage from an umbrella policy if you:
- Have a young driver on your auto policy. Teens are statistically the riskiest drivers on the road, with a crash rate three times that of drivers age 20 and older.
- Own a swimming pool or hot tub.
- Own waterfront property.
- Frequently entertain or host guests on your property.
Understanding if Umbrella Insurance Is Worth It for You
One clear understanding of umbrella insurance is that it’s affordable. For only about $150 to $300 per year, you can buy a $1 million personal umbrella liability policy. The next million will cost about $75, and $50 for every million after that, according to the Insurance Information Institute.
The low cost is likely because you are usually required to have larger liability limits on your home and auto policies to qualify.
Umbrella insurance cannot be purchased on its own, it is always added on to an existing policy in which home and auto are already bundled.
“Most insurance carriers give a discount on both your home and auto insurance if you have both written through them,” said Emily Buckley, senior insurance agent for AAA Northeast in Garden City, N.Y. With the amount you save from bundling, it could make sense to invest in an umbrella policy.
How to Get an Umbrella Insurance Policy
Now that you have a better understanding of umbrella insurance, do you think that it’s the right choice for you? Do you already have it? Tell us in the comments.