From rates to companies to coverage: find out what Umbrella Insurance is all about.
Unfortunate incidents happen.
And sometimes not always with you, but with other people. What if they were to sue you for their inconvenience based on your negligence? That’s a possibility.
Many people have homeowner’s insurance and auto insurance covering personal and liability costs, but sometimes incidents are in a greater magnitude that affects people more. Meaning, the cost of liability can be far higher than what your insurance is covering.
What do you do then? You’re not earning enough to fill in the liability out of your pocket, and you certainly can’t get away without paying. What’s the answer then?
Let’s dive into details and see what umbrella insurance covers and who needs it.
What is a Personal Umbrella Policy?
A personal umbrella policy allows policyholders to get an extra bit on their liability insurance. Just an extra chunk of money on liability insurance can solve many financial problems if people get into an expensive lawsuit or have to pay hefty medical bills for other people.
This is a different policy than their homeowner’s and auto insurance; an umbrella plan gives an added insurance if the expense exceeds what a policyholder’s existing insurance is covering.
Umbrella insurance doesn’t only cover the policyholder, but their family members too. If your spouse or children are sued or charged with a lawsuit due to an incident, this policy will also cover them and pay for legal and liability expenses.
Who needs Umbrella Insurance?
Anyone who assumes that the risk of damage could be far higher than their existing policy covers might need umbrella insurance.
If you have a wild dog at home or a teenager who gets rowdy while driving or socializing, you could be slapped with expensive lawsuits and subpoenaed. And to pay for legal expenses in this country is no piece of cake; all the money you have saved over the years is spent in the blink of an eye.
This is why umbrella insurance works for many people, especially those who suspect a high risk or liability on them.
What is covered under an Umbrella Insurance Policy?
It is important to note that the umbrella insurance policy gives you a cushion on your liability expense, not personal expenses. If anything were to go sideways, the insurance would cover the damage that you or your family may have caused to other people or their property.
Here are some examples that may help you to understand how umbrella insurance works:
- You get into an accident, and you damage someone else’s car in a collision. Their car was far more expensive, and the damage exceeds your auto insurance. The gap could be paid by umbrella insurance.
- Your son gets into a fight in the neighborhood and breaks another child’s nose. His parents sue your child.
- Your dog bites an old lady on the road, and she gets into a severe medical condition. You have to pay for her hospital bills.
Typically an umbrella insurance policy covers (in terms of liability ONLY):
- Bodily Injury
- Property Damage
- Landlord liability
- Legal costs
An umbrella insurance policy does NOT cover:
- Loss of personal belongings
- Business losses
- Liability during war
- Intentional acts of negligence or crime
How much does Umbrella Insurance Cost?
Umbrella insurance isn’t one of those costly plans, and that’s the best part. Since it is used as an extension to homeowner’s insurance and auto insurance, umbrella insurance is an affordable plan.
However, the cost of premiums depends on several factors like the policyholder’s age, driving record, location, credit history, and net worth. Although not entirely dependent on these factors, they do play a significant role in deciding the cost.
The cost depends anywhere from $200 to $1000 a year. To determine how much you have to pay depends on your net worth. Assess how much it is worth and what risk it is vulnerable to; this way, it will be easier for you to decide what sort of coverage you need.
Let’s look at it with an example.
Imagine you get into a road accident, and the liability cost, including damage to the vehicle and medical expenses, is $100,000. That’s A LOT of money!
Your auto insurance gives you a coverage of $40,000, which means the rest of the $60,000 liability you have to pay out of your pocket. If you have umbrella insurance, the insurance company will pay the remaining $60,000, and you could be free of that sort of financial stress.
The ACE report provides these typical annual costs:
- $383 for $1 million in coverage for a household with one home, two cars, and two drivers
- $474 for $2 million in coverage for the same household
- $608 for $5 million in coverage for the same household
- $999 for $10 million in coverage for the same household
- $1,578 for $10 million in coverage if the household also has two more homes, two more cars, a boat under 26 feet, and a driver who is under 25
Best Umbrella Insurance Companies of 2020
- Liberty Mutual: Best for Personal and Business Coverage
- Chubb: Best for Midsize to Large Business Owners
- Travelers: Best for Small Business Owners
- USAA: Best for Members of the Armed Services
- Allstate: Best for Recreational Vehicles/Watercraft
- GEICO: Best for Vacation Rentals
Should you buy an Umbrella Insurance?
The only answer to this question is to evaluate your needs properly and see if you need one. Will you ever be entwined in a circumstance where the preexisting liability insurance cover is less than what liability you’re charged for? If your homeowner’s and auto insurance coverage is enough, you probably don’t need extra coverage from umbrella insurance.
Even though it is one of the most affordable plans, it is still an extra premium that you have to pay annually. So if you’re not as exposed to liability expenses, you probably don’t need umbrella insurance to cover you.
But if you’re a high-risk driver or your family members are vulnerable to liability costs, you should probably get umbrella insurance to stay on the safe side.