An umbrella insurance policy provides additional coverage outside the existing limits of other policies, like car insurance and homeowners insurance. It can help further protect your assets if certain claims aren't covered by existing liability policies, like if you're sued for libel, get into a car accident abroad or if your dog causes harm to a guest.
Umbrella coverage kicks in when the underlying liability limit of an insurance policy is reached, and it's usually sold in increments of $1 million, up to $5 million. To purchase umbrella insurance, you'll need a minimum level of home and auto liability coverage, typically $250,000 for auto insurance and $300,000 for homeowners insurance.
Here's what you need to know about umbrella insurance and how to determine how much you need.
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Cost of umbrella insurance
The cost of umbrella insurance can range anywhere from $200 on the low end to over $1,000 for a high limit, according to Trusted Choice, with an average cost of about $380 per year providing $1 to $2 million of protection. However, how much you'll pay for umbrella insurance depends on several factors, like where you live, how much coverage you buy and your risk profile.
To determine how much your umbrella policy will cost, Trusted Choice advises individuals to assess their net worth, review their risk of becoming the target of a lawsuit and choose an appropriate amount of coverage, which "should be at least equal to your net worth."
You can also use this calculator to assess how much umbrella insurance coverage you need.
What does umbrella insurance cover?
Most umbrella insurance policies offer coverage for the following:
- Bodily injury: Umbrella insurance can help cover the cost of medical bills and/or liability claims for injuries to another person, whether it's from an at-fault auto accident or an accident in your home (guest falling, dog bite, etc.).
- Property damage: Umbrella insurance can help cover loss or damage you cause to another's property if the damage exceeds your underlying policy limits.
- Lawsuits: If you are involved in a lawsuit for slander, libel, defamation of character and/or other personal attacks, umbrella insurance can provide coverage for legal expenses.
- Landlord liability: If you own a rental unit, umbrella insurance can help cover liability claims you may experience as a landlord, such as if a tenant trips on the property, gets injured and sues. If your landlord policy reaches it's limit, umbrella insurance can provide additional coverage.
Buying an umbrella insurance policy
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 as well. You can offset at least some of the umbrella premium by taking larger deductibles on your auto and home insurance policies.
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 classified as potentially dangerous — ask an independent agent who represents multiple insurers to help you find a "stand-alone" umbrella policy.
Should I purchase an umbrella insurance policy?
In some cases, it makes more sense to purchase an umbrella insurance policy, especially if you have a lot of assets or a high chance of being sued. Progressive advises individuals whose net worth exceeds their maximum liability coverage via their standard insurance policies to open an umbrella policy in order to avoid any negative financial repercussions.
Furthermore, according to the Insurance Information Institute (III), you should purchase an umbrella insurance policy if certain activities and lifestyle risks raise the likelihood of someone suing you, such as:
- Owning a swimming pool and having pool parties
- Renting out a property you own
- Having a dog or a teenage driver in the house
You should also consider opening an umbrella policy if you:
- Are a landlord
- Own property
- Have significant savings/assets
- Want protection for liability claims against you when traveling outside the U.S.
- Coach kids’ sports
- Often host parties in your home
- Take part in sports where you could easily injure others — hunting, skiing or surfing
- Are a public figure
- Own watercraft or recreational vehicles
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