Advertisement
insurance

Why You Need an Umbrella Insurance Policy

If you're hit with a lawsuit, your auto or homeowners insurance may not fully cover you.

Quick quiz: Do you own a dog? How about a swimming pool or trampoline? Do you have a long commute? Are you a hunter? If you answered yes to any of those questions, you have an above-average chance of being sued. You are also more vulnerable if you have teen drivers at home, own more than one residence, employ domestic workers, entertain frequently, are active on social media, coach a youth sports team or serve on a nonprofit board.

CALCULATOR: How Much Umbrella Insurance Do I Need?

Even if you don't have above-average risk, if you're sued and found at fault for personal injury to others, your homeowners and auto insurance may not fully cover your liability. In 2016, half of personal injury liability awards and settlements were $100,000 or more; some 19% were $1 million or more, according to the latest edition of Current Award Trends in Personal Injury.

Advertisement - Article continues below

If you get hit with a judgment, your home or auto policy will pay up to the limits of your liability coverage, plus attorneys' fees. If your insurance doesn't cover the tab, your future earnings, home and other assets could be on the line for the difference. You can protect yourself with an umbrella policy, which adds another layer of liability protection.

Advertisement
Advertisement - Article continues below

Under the umbrella. An umbrella policy typically covers the same things as your home and auto policies, plus a few more, including lawsuits that arise when you're driving abroad or operating rented watercraft, or from alleged libel, slander or defamation of character.

Umbrella coverage picks up where the liability limits of your homeowners and auto policies leave off. It's usually sold in increments of $1 million (Chubb will go as high as $100 million). A policy typically costs $150 to $300 a year for the first $1 million of coverage, and about $100 for every million after that, according to the Insurance Information Institute (III).

Advertisement - Article continues below

Before most insurers will sell you an umbrella policy, you must buy your homeowners or auto policy from them and carry a minimum amount of liability coverage—typically $300,000 on your homeowners policy and, on your auto insurance, $250,000 for bodily injury to one person and $500,000 per accident, says the III. Most insurers cap the home and auto liability coverage they will sell you at $500,000 or $1 million, but Chubb will go to $10 million. Why not just increase your home and auto liability coverage to the max? It's usually more cost-effective to buy an umbrella policy than to increase your liability coverage beyond the minimum required by umbrella insurers, says Annmarie Camp, of Chubb Personal Risk Services.

If you buy your home and auto insurance from the same insurer, you'll typically get a discount of 10% to 15% on your annual premiums, and you may get an additional discount on the umbrella policy. You can offset at least some of the umbrella premium by taking larger deductibles.

With a single insurer, your coverage is less likely to fall through the cracks if the requirements for the umbrella policy change. And if you're sued, you'll have one set of defense lawyers for the entire case. Otherwise, agents advise you to buy the umbrella policy from your auto insurer because most large lawsuits involve auto accidents.

If your current home or auto insurer won’t sell you an umbrella policy—because your dog's breed is reputed to have a bad claims history, for example, or your family has had too many fender benders—ask an independent agent who represents multiple insurers (find one at www.trustedchoice.com) to help you find a "stand-alone" umbrella policy.

QUIZ: Does Insurance Cover That?

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

Applying for Disability Benefits During a Global Pandemic
insurance

Applying for Disability Benefits During a Global Pandemic

It can take months or even years to get approved for Social Security Disability Insurance (SSDI) benefits in the best of times. Needless to say, now i…
June 24, 2020
13 Reasons You Will Regret an RV in Retirement
retirement

13 Reasons You Will Regret an RV in Retirement

RV-loving retirees talk about the downsides of spending retirement in a motorhome, travel trailer, fifth wheel or other recreational vehicle.
June 8, 2020
Finding Affordable Health Care Now
insurance

Finding Affordable Health Care Now

The pandemic has caused millions of people to lose their jobs — and their health coverage. Here’s a guide to finding affordable insurance.
June 4, 2020
9 Things You'll Regret Keeping in a Safe Deposit Box
savings

9 Things You'll Regret Keeping in a Safe Deposit Box

Locking up certain important documents and valuables in a bank vault could turn into a headache for you or your heirs.
June 1, 2020