D. Gilson is a writer and author of essays, poetry, and scholarship that explore the relationship between popular culture, literature, sexuality, and memoir. His latest book is Jesus Freak, with Will Stockton, part of Bloomsbury’s 33 1/3 Series. His other books include I Will Say This Exactly One Time and Crush. His first chapbook, Catch & Release, won the 2012 Robin Becker Prize from Seve...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer

UPDATED: Jul 19, 2021

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An umbrella policy can protect your assets.
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 (particularly important if you own a rental 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 a minimum coverage of $100,000 for property damage liability, and $300,000 in bodily injury coverage to pay for damages in the event of an auto accident. You’ll also need a homeowners policy with at least a $300,000 liability limit. 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 insurance policy. That means you’ll have to have auto, homeowner, and personal umbrella coverage from a single insurer. However, some umbrella insurance 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 personal 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 should strongly consider a commercial umbrella policy.
  • 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 involving hundreds of thousands of dollars are always a possibility.

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. And just as with other types of insurance, you’ll find that insurance carriers vary in what they charge for umbrella liability insurance, so make sure to shop around for the best deal. Start with the insurance provider with whom you have your current policies and ask about bundling options. Most major insurers provide discounts to customers who bundle. You should also talk to an independent insurance agent, as they generally know about the best available deals.