Feb 22, 2021

When to Consider an Umbrella Insurance Policy

by 
Obie

What is an umbrella insurance policy?

An umbrella insurance policy can provide the extra amount of liability coverage needed to cover unexpected expenses. It is used to supplement other policies’ liability coverage, including renters’, auto, and home insurance. The umbrella policy will kick in once basic liability coverage is exceeded.  

What is covered under an umbrella insurance policy?

Umbrella policies will cover excess liability costs up to the policy limit. An umbrella policy is typically used when you are sued and found at fault for an accident, such as someone getting injured at your home. Most coverage includes property damage and bodily injury liability claims. The umbrella policy also may cover expenses you are found responsible for such as others’ medical bills or funeral costs; property damage; your legal defense bills; and, if you are a landlord, injuries suffered by a tenant. It also typically covers loss of wages if a person cannot work due to injuries for which you are found liable. 

Does umbrella insurance cover lawsuits?

Umbrella insurance policies ensure protection against potential lawsuits. The insurance will protect your assets if you are found liable for property damage or bodily injuries. It also will cover costs for your legal defense if you are not found liable. 

What does an umbrella insurance policy not cover?

An umbrella policy usually does not cover costs for your own injuries or property damage; intentional or criminal acts; or liability relating to agreed-upon contracts.

Who needs an umbrella insurance policy?

If you are sued, your current and future assets, such as properties, stocks, bonds, savings, and retirement funds, could be at risk. If you want to mitigate risk and boost the protection of your assets, you should consider an umbrella insurance policy. 

When is umbrella insurance necessary?

Umbrella insurance supplements your standard insurance policies. The coverage protects your assets in many instances when you could be found liable for damages or injuries. Policies can vary, but examples of what might be covered include:

Your dog bites another dog or person and causes bodily injury;
Your teenage son or daughter drives, gets into a serious car accident and damages exceed your automobile insurance policy;
Someone drinks too much alcohol at your house then drives and gets into an accident; or
Your child’s friend is injured while using your backyard playground equipment.

Landlords might purchase an umbrella insurance policy to protect against the risk that a tenant or guest is injured at their property due to negligence, such as a wobbly handrail. An umbrella policy also may cover issues typical insurance policies do not cover, such as defending yourself and paying damages in cases of slander, libel, or false arrest. Further, an umbrella policy typically will cover liability claims for “pain and suffering,” which is often costly and associated with the psychological ramifications resulting from an incident in which you are found liable.

Is it worth having an umbrella policy?

An umbrella policy can be a relatively low-cost way to shield your assets from unexpected liability expenses and lawsuits. Legal defense costs alone can quickly add up to tens of thousands of dollars. The first $1 million of personal excess liability coverage costs about $150 to $300 per year, according to the Insurance Information Institute. Umbrella liability coverage can be a good way for anyone to protect against claims that put your finances at risk. People with more assets tend to buy umbrella policies more often.

When deciding whether to purchase an umbrella policy, you should also consider your lifestyle and how likely it is that you might be found at fault for someone’s injuries. For example, if you are a landlord, own a dog, hunt, or have a swimming pool, an umbrella policy might be a good investment. An umbrella insurance policy is designed to cover costs and protect your assets if you are sued by a third party and found at fault. It covers a wide variety of claims and can be a reassuring layer of protection to preserve your current and future assets.