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Umbrella Insurance Coverage

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Umbrella Insurance Can Protect You Beyond the Limits of Your Regular Policy

Umbrella insurance has nothing to do with keeping you dry but it might protect you if your homeowners, vehicle, or boat policy doesn’t. Specifically, it is designed to protect you from liability that exceeds the limits of the other policies mentioned. In addition, it can protect from some specific forms of liability like libel or slander as well as injuries to others.

Nobody wants to find themselves facing a lawsuit for leaving a bad review or damaging someone else’s property. Not only is this emotionally stressful, but it puts your assets at risk if the claim exceeds your insurance policy limits, which could be financially devastating. 

Thankfully, this is why umbrella insurance exists. 

Umbrella insurance is a fail-safe that protects you from financial ruin should you encounter a situation where your base coverage isn’t enough. It provides supplemental coverage to protect your assets while also doling out extra coverage like paying legal fees for libel, slander, or imprisonment.

So, it’s pretty overarching coverage—hence the term “umbrella insurance.”

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Table of Contents

How Does Umbrella Insurance Works?

When you purchase any insurance, personal, home, auto or boat, and a claim is filed against you, your policy will pay out until it reaches its cap. If the claim exceeds the policy limit, you risk paying out-of-pocket unless you have umbrella insurance, which increases your limits.

Umbrella Insurance Coverage

Umbrella insurance is available as an add-on to your home, auto, personal, or boat insurance policies.

Let’s take a look at umbrella insurance and when you would use it.

  • Home: Umbrella coverage is a rider for your homeowner’s insurance that protects your property from damages or from the bodily injury that happens on-site. This is also designed for landlords to protect their rental investments.

Examples of when umbrella insurance would kick in:

    • If your dog bites a person and the lawsuit exceeds your limits
    • A houseguest gets injured on your property and sues beyond your limits

  • Auto: If you’re in the car often or have dependents on your auto insurance policy, then you may require umbrella insurance for your vehicle. Having umbrella coverage will help cover vehicle-related claims (to the vehicle or injuries associated) above your policy limit when you’re at fault. 

Example of when umbrella insurance would kick in:

    • You or a dependent gets into an at-fault accident and the claim is beyond your policy limit. 
  • Personal: This type of umbrella insurance protects you from libel & slander, or lawsuits associated with you voicing your opinion. Personal umbrella insurance can be added to your homeowner’s insurance and will help pay for legal fees if you’re sued.

Examples of when umbrella insurance would kick in:

    • You get sued for writing a negative review
    • You get sued for slander or defamation of character

  • Boat: Should a boating accident occur over your policy payout limit, umbrella insurance will increase your coverage limit.

Examples of when umbrella insurance would kick in:

    • You get into a serious boating accident and the claim filed extends beyond your limit.

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What Umbrella Insurance Doesn’t Cover?

Umbrella insurance, true to its name, covers you when your insurance policies reach their limit; however, it won’t cover everything. 

The important thing to remember is that umbrella insurance protects you from liability, i.e., protection from claims against you. 

These are some of the things that umbrella insurance won’t cover:

  • Damages to your property: Any damage is done to your property (home, car, or boat), and umbrella insurance won’t activate; that’s what your homeowners, car, or boat insurance is for.
  • Personal injury: Personal injuries aren’t covered under umbrella insurance.
  • Premeditated injury or criminal acts: If you or a member of your policy intentionally injures someone, umbrella insurance will not cover the associated medical bills or legal fees. This also goes for criminal acts such as war, nuclear radiation, or terrorism — you’re on your own.
  • Contract violation: If you sign a contract to have new windows installed and then renege on the deal by not paying, you’re liable to fulfill the contract, not your umbrella insurance.
  • Intentional defamation of character: If you purposely say something that defames another, your umbrella coverage won’t protect you.
  • Business liability: If a claim is filed against you for whatever reason (libel, injury, or property damage) and it falls under your business insurance, umbrella insurance won’t overlap your business coverage.
  • Business losses: If your business incurs losses, umbrella insurance won’t help you.

Do You Need Umbrella Insurance?

Not everyone requires umbrella insurance, just those at high risk of being sued or for those that want to pad their current insurance policy as a precaution. 

These are the circumstances that increase your risk:

  • Hefty savings: If you have a large savings account or manage a family trust, you must protect your assets with umbrella insurance.
  • You have large pets: Given the unpredictable nature of dogs or barnyard animals like horses, should one of your pets injure another, it opens you up to a lawsuit.
  • You own a trampoline, pool, pond, or playground: These outdoor activities are considered risky and can easily injure someone. So if your children bring friends over and one gets hurt playing on the trampoline, umbrella coverage will cover your legal expenses and associated fees if you’re sued.
  • You host large gatherings: If your house is party-central for family gatherings or social soirees, it’s a good idea to have umbrella insurance—just in case.
  • You’re responsible for others: If you sit on a nonprofit or charitable board, coach little league or you are a landlord, it’s in your best interest to get umbrella insurance.
  • Public profile: If you’re a recognizable figure in your community, you’ll benefit from having umbrella insurance to protect your image from potential lawsuits.
  • You travel or partake in risky activities: If you frequently travel out of the country, your umbrella coverage “travels” with you and will protect you from a lawsuit. You’ll also want umbrella insurance if you’re into activities that could unintentionally injure another, like hunting, martial arts, or skiing.

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How Do I Get Umbrella Insurance?

If you’re interested in increasing your insurance policy by adding umbrella coverage, you have to meet some basic criteria first:

  • Homeowners insurance: Your existing home insurance needs a minimum of $300,000 in liability to qualify you for umbrella coverage.
  • Auto insurance: $100,000 for property damage and $300,000 for bodily injury to make you eligible for umbrella coverage.
  • Boat insurance: $300,000 in watercraft liability is the magic number that enables you to get umbrella insurance.

How Much Coverage Do I Need?

When considering umbrella insurance, remember not every insurer offers the same rates or coverage. Be sure to check the umbrella limits and opt for the policy that gives you both a good rate and enough coverage. 

These are some things to consider when deciding how much additional coverage you need:

  • Asset value: You need enough coverage to protect the total value of your assets, as this will safeguard your finances from lawsuits. This means you want to calculate your net worth by adding up your savings, property value, and investments.
  • Loss of income: In addition to protecting your assets, you’ll want enough coverage to support you should you become entangled in a lawsuit. This means what you stand to lose — income, future assets, etc.

How Much Does Umbrella Insurance Cost?

Once you’ve added up your net worth, you have a rough idea as to how much umbrella coverage (dollar value) you need. Insurers sell umbrella coverage in million-dollar increments, so if you need $2 million to protect yourself, then that’s the amount you purchase.

The standard cost of umbrella insurance is:

  • Starting Coverage: For low-end coverage—$1 million—you’re looking at an annual fee of between $150-$300.
  • Higher Coverage: If you’re in the market for $2 million in coverage, your rate will be $75 extra ($225-$375), and for $3 million+, it’s generally another $50 more for every million thereafter.

Again, these rates are just average costs. To get the best idea of the cost of umbrella insurance for you, get a quote. We can help. We’ve curated a list of the best umbrella insurance providers and will match you with the best company for your needs. 

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Why You Should Consider Umbrella Insurance?

Insurance offers you peace of mind, while umbrella insurance offers you added protection against liability. This is especially important for individuals with high net worths, notoriety, landlords or for people that partake in high-risk activities (owning a pool, having large animals, or hosting big parties) as it protects your assets from lawsuits.

Not everyone needs umbrella insurance, but it can be life-changing for the people who could benefit from it.

To determine the amount of umbrella coverage you need, calculate the value of all your assets (finances, property and investments) as well as your projected loss of income to arrive at how much coverage you need.
Having umbrella coverage is largely dependent upon your needs. If you’re at risk of a lawsuit, having umbrella insurance is well worth the added cost. But for someone with relatively low risk, paying the extra annual fee for umbrella insurance may not be in their best interest.