Umbrella Insurance

Protecting your home, car, and business with insurance is a smart idea. Insurance coverage is designed to safeguard the investment you have made in your property and business. But when unexpected risks over and above standard insurance liability coverage threaten your finances, another type of coverage can make a big difference. Umbrella insurance is designed to pick up when the liability coverage on your other policies is exhausted.

In this article, we’ll explain how umbrella insurance works, what it does and does not cover, coverage options, and how to save on costs. You’ll also learn how an independent insurance agent can help you anticipate legal risks ahead of time and choose the best umbrella coverage for your peace of mind.

What Is Umbrella Insurance?

Umbrella insurance, also called excess liability coverage, is a separate insurance policy that acts as a liability “umbrella” that provides extra coverage protection for your business, auto, home, motorcycle, and boat policies. It’s a liability-only policy, meaning it can help cover costs if you are sued for injuries, property damage, or personal actions that cause mental anguish or harm to another person’s reputation. Umbrella insurance simply extends your underlying policy's liability limits in the event of a large claim.

Most insurance companies offer umbrella policies in million-dollar increments, starting at $1 million and ending at $5 million. However, some offer a lower limit, like $500,000, or even a higher limit, over $5 million. When you speak to your independent agent, they'll be able to guide you to what's best for you and handle all the heavy work to find it for you.

How Does Umbrella Insurance Work?

Umbrella insurance expands a policy’s liability coverage to help cover the costs of lawsuits, settlements, and legal defense, as long as the reason for the lawsuit is covered by your policy. If you have a party at your house and a guest trips on the uneven pavement leading to your entry, they could sue you for medical and legal expenses, lost wages, and more. If they are awarded $200,000 in damages and your homeowners insurance covers you for up to $100,000, your umbrella coverage can help cover the additional costs of your legal defense and settlement.

Umbrella insurance can even sometimes cover certain types of lawsuits that aren't covered by your homeowners, business, or auto insurance – such as libel, slander, or invasion of privacy.

Here's a breakdown of umbrella coverage on top of an auto insurance policy:

So, if you had an auto insurance policy that provided $300,000 in liability coverage and then added a $1 million umbrella policy, you'd have increased your liability protection up to $1.3 million total. The good news is that umbrella policies tend to be highly affordable. Especially considering the generous amount of added protection they offer. 

What Does Umbrella Insurance Cover?

An umbrella policy is designed to extend liability protection included in other types of insurance. Personal umbrella policies are most commonly paired with homeowners insurance, auto insurance, or watercraft insurance. Conversely, business umbrella policies are paired with general liability coverage under business insurance or commercial auto insurance.

Just as a regular umbrella protects you against harsh weather, umbrella insurance protects you against harsh legal consequences. In addition, umbrella coverage can extend to other members of your household who do not have car or property insurance in their own names. Generally, umbrella insurance provides liability coverage for expenses and lawsuits for covered claims involving:

• Personal injury to others
• Damage to other people’s property
• Claims of libel, slander, defamation of character, or invasion of privacy
• Landlord liability


      
   
    
 
    
 
   
    
   
   
     
  
     
 
 


Umbrella insurance usually covers:	Umbrella insurance usually doesn’t cover:
Others’ treatment for injury and funeral costs	Your own injuries
Others’ property damage	Damage to your personal belongings
Lawsuits involving slander, libel, defamation of character and other personal attacks	Others’ injuries or property damage that your business is liable for
Your legal defense costs	Intentional or criminal acts

What Doesn't Umbrella Insurance Cover?

Umbrella policies aren’t standard across the country. This means your policy could look quite different from your neighbor's. In addition, umbrella coverage does not cover expenses if:

• Damage happens to your own property.
• You intentionally harm someone or engage in illegal activity.
• Claims are not covered by your primary policy or specifically excluded by your primary or umbrella policy.
• You have a contract that makes you liable for the safety of workers on your property.

Umbrella policies come with a “self-insured retention,” which is similar to a deductible. The policy will spell out how much you have to pay before your umbrella coverage will pay on a claim. 

It’s important to understand that personal umbrella insurance will not cover losses from your business operations. For that type of coverage, you’ll need commercial insurance.

Sound complex? One of the primary roles of an independent insurance agent is to understand your needs for umbrella coverage, explain your options, and ensure you understand what is and is not covered.

Do I Need Umbrella Insurance?


 
  
    
      
   
 
 
    
   
    
 
    
 
   
 
 


Umbrella Insurance Pros:	Umbrella Insurance Cons:
Provides extra liability coverage and legal defense costs once the limits of your auto, home or business insurance have been exhausted.	You must already carry auto or property insurance, usually homeowners, to qualify.
Covers incidents your primary insurance may not, like libel and slander.	You're required to buy a minimum amount of auto and/or property insurance liability coverage before you can add umbrella coverage.

Your umbrella policy is there to help protect your finances against unforeseen, expensive legal troubles. Here are a couple of common scenarios where umbrella insurance is critical.

• Car accidents: Whether you hurt someone else with your vehicle or damage their property, lawsuits following car accidents can quickly exceed your standard auto coverage. 
• Dog bites: Dog bites can be some of the most expensive legal claims filed against homeowners, with an average cost in one recent year of $49,025.
• Guest or customer injuries: Accidents on floors, stairs, and sidewalks are common and can result in costly lawsuits when filed against homeowners and businesses. Without additional protection, your finances could take a big hit.  

How Much Umbrella Insurance Do You Need?

To decide how much umbrella insurance coverage you need, it helps to understand the value of all of your assets. The more you have, the more you stand to lose. So, if the value of all your property, savings, and investments adds up to $2 million and your current insurance policies cover liability up to $1 million, you’ll have a gap of $1 million. That gap represents how much umbrella coverage you should have.

Umbrella insurance is typically sold in increments of $1 million. You may think that is a lot of money, but lawsuits can quickly add up to amounts greater than that. Remember, umbrella coverage is designed to protect your finances. How long would it take you to recover from having to pay $1 million or more out of your own pocket?

There is no law requiring you to have umbrella insurance, but it can be a good idea. For many people, $1 million in umbrella coverage can equal great peace of mind. But in situations like these, you may want more than $1 million in coverage:

• You have an inexperienced driver in your family.
• You coach kids’ sports or serve on a volunteer or nonprofit board.
• You own more than one property and/or are a landlord.
• You own things that could result in injury to others (pool, trampoline, guns, a dog).
• You are a public figure.
• You own a business.

How Can Umbrella Insurance Help Protect You?  

Umbrella insurance protects your finances from unexpected events that result in you being held responsible for damages or injuries to others. When those events happen and costs exceed your standard insurance coverage limits, umbrella insurance is there to help cover the costs and prevent your financial ruin. Here are some examples:

Your dog bites a visitor: While homeowners insurance can help cover expenses associated with injuries caused by your dog, the costs or your visitor’s lawsuit may be higher than what is provided by your coverage. Umbrella insurance can help cover those costs or if you are found legally responsible.

You accidentally crash your car: It happens. You (or your inexperienced teen driver) hit the gas instead of the brake. The car crashes into a storefront or another car. The resulting damage can add up fast, especially if those affected by the crash decide to sue you. While your auto insurance will pay first, your umbrella policy can stand in the gap to manage the additional costs.

Your kid’s social media post creates backlash: When your kid posts some teasing remarks on his social media account about another child, that child’s parents may choose to sue you for libel, pain, and suffering. Even if the suit is decided in your favor, you will still incur court costs. Your homeowner’s policy may partially cover those costs, while umbrella insurance can cover the remainder.

How Much Does an Umbrella Policy Cost? 

Most insurance companies offer $1 million umbrella policies priced around $200 per year. For an additional $1 million dollars in coverage, you'd add about $100 to your annual premium and about another $75 per year for each additional increment of $1 million. Costs will vary, depending on the amount of coverage you choose and other risk factors.

The largest umbrella insurance cost factors include the following:

• Owning rental properties or second homes
• Owning more than two vehicles
• Owning a boat, motorcycle, camper, or ATV
• A driving record with accidents or violations in the last three to five years

How To Purchase an Umbrella Insurance Policy

To purchase umbrella coverage, you will need to do so through the same company that provides your home, auto, renters, or business insurance. According to the Insurance Information Institute, you will usually need to have $250,000 of liability insurance on your auto policy and $300,000 of liability insurance on your homeowners policy before umbrella insurance can be added.

Your independent agent can help you review your options for umbrella insurance. When you are ready to add umbrella insurance, you will need to provide:

• Your auto or homeowners insurance policy information, including liability coverage amounts
• Driving history for all members of the household
• Names of all vehicle owners
• Information about any additional properties that you own, including insurance coverage on those properties
• History of liability claims
• History of civil or criminal charges

Umbrella Insurance FAQ Answered

Your Independent Insurance Agent Has Your Answers to Umbrella Insurance Questions

Whatever you need, your agent has your back. With a brief intro into the terms, discounts, and process of your umbrella insurance, you now know the kinds of questions to be asking. Your agent will ask you all about your liability needs and goals to help find the perfect blend of coverage at the right cost for you.