Understanding Umbrella Insurance – What is it? And should I get it?
While umbrella insurance might sound like something you would need when it’s raining heavily or when you’re dealing with a stormy situation, it actually can be a crucial financial safety net that can protect you from unexpected liability claims. Unlike traditional car, home, or renters insurance, umbrella insurance extends your coverage, providing additional liability protection beyond the limits of your existing policies. It is designed to cover you when the liability limits of your other insurance policies—like your auto, home, or boat insurance—are exhausted due to a claim.
In this article, we’ll explain what umbrella insurance is, how it works, and who should consider getting it.
What Is Umbrella Insurance?
Umbrella insurance is a type of liability insurance that provides extra coverage above and beyond the limits of your existing policies. It is often referred to as “excess liability insurance” because it kicks in when the limits of your primary policies (auto, homeowners, or renters) have been reached. The coverage is typically broad and can include:
- Personal Injury: If someone is injured on your property, in your car, or as a result of your actions, umbrella insurance may cover medical costs and legal fees.
- Property Damage: If you are responsible for damaging someone else’s property, umbrella insurance can cover repair or replacement costs.
- Legal Fees: Even if you are not found at fault, umbrella insurance can help pay for expensive legal defense costs in a lawsuit.
How Does Umbrella Insurance Work?
To understand how umbrella insurance works, let’s consider an example. Imagine you are involved in a car accident that causes a substantial injury to another person. Your auto insurance has a liability limit of $500,000, but the medical bills for the injured person total $1 million. In this case, your umbrella insurance policy would kick in to cover the remaining $500,000, protecting your assets and savings from being drained to settle the remaining claim.
Umbrella insurance is designed to be affordable, and it usually comes in million-dollar increments. Policies typically start at $1 million in coverage and can go much higher depending on your needs.
Who Should Get Umbrella Insurance?
1. Anyone Who Owns Property
Homeowners and those with rental properties are at a higher risk of being sued, especially if someone is injured on their property. For example, if a guest slips and falls at your home or if there’s damage to a neighbor’s property due to something on your premises, umbrella insurance can cover the costs.
2. Anyone Who Owns a Car
Car accidents are among the most common causes of umbrella insurance claims because they can lead to significant property damage, injury, and medical costs that quickly exceed the limits of standard auto insurance. Whether you’re a new driver, a seasoned one, or you have teenage children behind the wheel, umbrella insurance is a wise investment to protect yourself from potential financial devastation in the event of a severe car accident.
3. High Net-Worth Individuals
If you have significant net worth, whether it’s savings, real estate, or investments, you should obtain umbrella insurance. Lawsuits can lead to significant financial risks, and having extra coverage ensures your assets are protected if you’re found liable for a large claim.
4. Business Owners
If you own a small business, umbrella insurance can protect you in case your business activities result in liability claims that exceed your business insurance policy’s coverage limits. For example, if a customer gets injured on your business property, the umbrella insurance could cover the excess.
How Much Does Umbrella Insurance Cost?
The cost of umbrella insurance is relatively low compared to the protection it offers. According to Trusted Choice, “An average cost of about $380 per year can provide $1 to $2 million of protection.” The cost can vary depending on your location, risk factors, and the level of coverage you need. It’s a good idea to consult with your financial advisor to determine the amount of protection you need. By providing extra protection beyond your standard policies, umbrella insurance can give you peace of mind knowing that you’re covered in case the unexpected happens.
If you have any questions, please don’t hesitate to reach out to a member of our team for further discussion.
Sources: https://www.trustedchoice.com/umbrella-insurance/coverage-rate-cost/
Disclaimer: The scenarios and examples provided in this article are for illustrative purposes only and do not constitute financial, legal, or insurance advice. Every individual’s situation is unique, and we recommend consulting with a licensed insurance professional or financial advisor to determine the right coverage for your specific needs.