Is an Umbrella Insurance Policy Right for You?
Umbrella insurance policies are add-ons that kick in from lawsuit-based actions once you've exhausted the limits of an auto or homeowners insurance policy. Umbrella insurance can offer $1 million or more in total coverage. Umbrella policies are especially useful if you've accumulated a large amount of personal savings or wealth, or if you're a small business owner. Enter your ZIP code below to start comparing umbrella insurance quotes for free.
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UPDATED: Apr 2, 2021
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An umbrella policy can protect your assets. (image by faqs.org)
You may have never heard the term “umbrella insurance,” but these broadly-based insurance policies offer protection that simply isn’t available from standard car or home insurance policies. Umbrella insurance policies are add-ons that kick in from lawsuit-based actions once you’ve exhausted the limits of a homeowners or auto insurance policy, and they offer $1 million or more in total coverage.
Many consumers carry state-minimum liability coverage on both their auto and homeowners policies, which normally range from $15,000 to $100,000. If you exhaust these limits on your personal liability insurance, you’re potentially looking at having to pay thousands of dollars out of pocket for claims. In a worst-case scenario, a court could order your assets – including your home – seized and sold to pay for a judgment rendered against you.
Umbrella policies are especially useful if you’ve accumulated a large amount of personal savings or wealth, or if you’re a small business owner. They offer coverage in situations that include:
- Claims or judgments exceeding your homeowners or car policy limits
- Damages and bites caused by pets such as dogs or cats
- Injuries that occur on your property
- Defamation, libel or slander damages and judgments
Umbrella policies do have coverage limits and won’t cover everything. Here are some examples of where an umbrella policy wouldn’t pay:
- Any illegal activities, such as driving under the influence and being in a wreck
- Any high-risk actions you do intentionally, such as drag racing
- Causing intentional harm to others or their property
- Work-related actions. If it involves a business, you’ll need a separate policy, as umbrella coverage is only for individuals
One of the best things about umbrella policies is that they’re usually available at a very low cost. While policies and premiums available vary from state to state, a $1 million umbrella policy normally has an average cost of around $1 per day for the additional coverage.
Because these policies are so inexpensive, they’re a smart investment, no matter how large or small your personal wealth is. Keep in mind that anyone can be sued, and a single crash involving injury or death of a person can quickly exceed the limits of many auto policies, especially if there is a wrongful death lawsuit involved. Even if you have no assets to protect, a judgment from such a lawsuit can leave you paying for the rest of your life through wage garnishments.
Despite their low cost, sometimes it isn’t just as simple as purchasing an umbrella policy. For example, if you’re a Geico customer, you’ll be expected to carry an auto insurance policy on your vehicles with minimum coverage of $100,000 for property damage, and $300,000 in bodily injury coverage. You’ll also need a homeowners policy with $300,000 in liability coverage. Since these exceed state-required limits, you’ll likely be paying more for other policies, despite the low cost of umbrella insurance coverage.
Some insurers require that you bundle all of your policies with them before they’ll sell you a personal umbrella policy. That means you’ll have to have auto, homeowner, and umbrella coverage from a single insurer. However, some companies will underwrite umbrella coverage without you being a customer with your other policies.
We’d suggest that the higher your net wealth, the more likely you are to need the extra layer of protection with the coverage afforded by an umbrella policy. And if you do any of the following, these policies should be considered a must:
- You have a net wealth of more than $1 million. You should have enough coverage to protect your assets in full.
- You’re not afraid to show your wealth. If you drive a Ferrari or other exotic car, you’ll be considered a potential target.
- You own your own business. Because your ownership in a business can be considered an asset, they too could be seized in a judgment.
- You have extra risk factors in play. Do you own a pool, a trampoline, or other high-risk activity that you allow others to use? If so, personal injury lawsuits are possible.
Just as we recommend a review of your car insurance policy every year at a minimum, we also recommend you consider your complete insurance needs as well. If you’ve experienced life changes, such as increased personal property or wealth from inheritance or other means, we highly recommend for extra protection that you consider the addition of an umbrella policy as well.