What Is Umbrella Insurance and Is It Right for Me?

March 26, 2019

Between the ages of 1 and 44, the number one cause of death is an unintentional injury. Two of the top causes of these accidents? Motor vehicles and drowning.

When someone dies, family and loved ones often look for reasons or even someone to blame.

In the case of unintentional injuries or death, often the responsible party being sued.

What is an umbrella policy? It’s an insurance policy that protects your assets in case of a lawsuit.

Read on to learn everything you need to know about umbrella insurance policies.

What Is an Umbrella Policy For?

Unlike auto insurance, the law doesn’t require you to buy an umbrella policy. An umbrella policy acts as extra liability insurance when other coverage runs out.

Take a look at your car insurance policy.

Note the limits under the different categories. What’s the limit on your bodily injury coverage? How about the property damage liability limit?

Most states limit the amount of bodily injury and property damage liability coverage. The top coverage limit is often $500,000. Most people don’t pay for the full $500,000 because it makes the auto policy more expensive.

If you’re at fault in a car accident, it’s possible you’ll get sued. You could be on the hook for hundreds of thousands of dollars.

If the costs go over the limit on your policy, how will you pay the rest? If you’re found at fault, a judge could order you to pay the added costs. If you have assets, like a home, you might have to sell it to pay the bills.

You could even have to pay from your future earnings.

That’s where an umbrella insurance policy kicks in.

What Does an Umbrella Policy Cover?

Here are some situations covered by an umbrella policy:

  • The other person’s property damage
  • The other person’s medical treatment
  • The other person’s funeral costs
  • A lawsuit against you for slander, libel, or defamation of character
  • Your legal costs for defending yourself
  • If you’re a landlord, injury or property damage suffered by a tenant

The umbrella policy takes over when your other coverages hit their liability limits.

Most companies won’t sell you an umbrella policy without you first having a specific amount of car insurance. If you own a home, you’ll need a homeowner’s policy too.

What Doesn’t an Umbrella Policy Cover?

There are some situations in which your umbrella policy won’t cover you. These include:

  • Your injuries
  • Damage to your belongings
  • Criminal acts
  • Intentional acts that cause harm
  • Bodily injuries or property damage for which your business is liable
  • Damages or injuries incurred while using some recreational vehicles

An umbrella policy won’t cover you if you engage in criminal behavior. Intentionally hurting someone is also not covered.

It also won’t cover your own injuries if you cause a car accident. Your auto policy should cover your injuries.

Who Needs Coverage?

If you own a home or other assets, consider an umbrella policy. There are other reasons for having an umbrella policy as well, such as:

  • Owning a boat, car, or other vehicles
  • Youth sports coaches
  • Parents
  • Pet owners, especially those who own dangerous pets or excluded dog breeds
  • People who entertain guests in any property they own
  • Landlords
  • People who do a lot of volunteering
  • People who talk in public about other people or other people’s businesses

These are all situations that leave you vulnerable to a lawsuit. Having an umbrella liability policy gives you a much-needed extra layer of insurance.

If you own a dog that’s an excluded breed on your homeowner’s insurance, you need an umbrella policy. If the dog bites someone, you’re liable for any costs associated with the injury.

In 2017, insurance companies paid over $686 million dollars for dog-bite incidents!

How Much Coverage Is Enough?

While not everyone needs coverage, many people should have an umbrella policy. Take a look at your personal situation and consider a few things.

Most umbrella policies start at a coverage of $1 million dollars. If you don’t own any assets, such as a house or car, you may not need coverage.

What’s your net worth?

Figure this out by calculating the value of all your assets. That includes your house, cash, stocks, bonds, and all retirement assets. Add in anything else that has financial value.

Subtract your debts from the total. This gives you your total asset amount.

How much is covered under your existing auto and homeowners insurance policies?

Look at the bodily damage per person and per accident as well as property damage per accident on your auto policy.

On the homeowner’s insurance policy, look at the personal liability per occurrence.

From your total assets, subtract the dollar amount of the least amount of liability coverage you have.  You’re left with the amount of money that’s unprotected by your current policies.

If that number is less than $1 million, then get an umbrella policy for $1 million. Do your unprotected assets hover around $1 million dollars? Consider getting a policy for $2 million dollars.

A $1 million dollar basic policy is enough for most people. But consider your future earnings. If something happens and you’re held liable, your future earnings are also at stake.

Umbrella Policy Costs

Considering the assets at stake, umbrella policies are worth the cost.

Umbrella policies are sold in $1 million dollar increments with the smallest policy being $1 million.

Most policies are about $150 to $200 per year for a $1 million dollar policy. But all policies differ based on your lifestyle and risks.

If you have a dangerous dog or a risky hobby, expect your policy to cost more.

Is It Time for an Umbrella Policy?

What’s an umbrella policy? It’s asset protection. People work hard for what they own. If you own a house, a car, and have kids, an umbrella policy is a good investment.

If you drive more than a few miles to and from work, an umbrella policy is a good idea.

An umbrella policy is a smart way to protect your investments.

Call us for an umbrella policy quote today!


**This blog provides a brief overview of the terms and phrases used within the insurance industry. These definitions are not applicable in all states or for all insurance and financial products. This is not an insurance contract. Other terms, conditions and exclusions apply. Please read your official policy for full details about coverage. These definitions do not alter or modify the terms of any insurance contract.