What Is Umbrella Insurance? | US News – U.S. News & World Report
Your home or car insurance can protect you financially if you’re responsible for injuring someone or damaging their property. But what happens if your liabilities exceed your policy’s coverage limits? That’s where umbrella insurance comes in. A personal umbrella insurance policy can help protect your assets in the event of a large liability claim or a legal judgment.
What Is an Umbrella Insurance Policy?
Umbrella insurance (UI) is a strictly optional policy that acts as a secondary layer of asset protection beyond what the personal liability portion (PLI) of your homeowners, car, or other insurance policy can provide. If your PLI maxes out but claims or judgments remain for injuries or property damage, umbrella insurance can cover the balance.
Depending on the insurer, you may be able to purchase $1 million or more worth of umbrella insurance coverage. Travelers, for example, offers UI coverage up to $10 million, while Chubb has plans that cover up to $100 million. Regardless of the insurer, you will generally need to have an existing home, condo, renters, or auto insurance policy that includes liability coverage of $250,000 to $300,000 before you can purchase an umbrella policy.
What Does Umbrella Insurance Cover?
Bodily injury to others, such as a houseguest who slips on your wet patio or a family pet that lashes out at a passerby on your property.
Property damage that you and those covered by your policy (such as a spouse or child) cause unintentionally. Examples of this can include damage to another person’s car if you’re at fault in a collision or expensive school equipment that your child accidentally broke.
Legal expenses stemming from a lawsuit over bodily injury or property damage, regardless of whether or not you are found at fault.
Slander, libel, and personal defamation claims, such as a lawsuit filed because of a post you made on social media.
What Doesn’t Umbrella Insurance Cover?
While umbrella insurance can protect your assets, there are limits to what it covers. Umbrella coverage typically excludes:
Damage you cause intentionally. This won’t be covered by personal liability or umbrella insurance because the incident could have been avoided. If you knowingly create an unsafe environment and a visitor gets hurt, you’ll be on the hook for legal, medical, and other expenses covered in a lawsuit.
Liabilities stemming from your business or occupation. If you want protection from potential business-related lawsuits or claims, you should consider a business liability insurance policy.
Damage to your own property. Umbrella insurance only applies to damage that you cause to other people’s property. Damage to your property, such as a tree falling on your roof or a kitchen fire, should be covered by your homeowners insurance.
Injuries you or members of your household sustain. Those may be covered by either your health insurance or the personal injury protection (PIP) portion of your car insurance.
How Does Umbrella Insurance Work?
Umbrella insurance covers the gap between your liability coverage and outstanding costs associated with a claim. Let’s say your child invites a friend over to play on your backyard trampoline. While bouncing around, the friend falls off and is badly hurt. Your homeowners insurance includes $100,000 in personal liability insurance coverage with a $5,000 deductible. You pay the $5,000, and your insurance covers the remaining $95,000 in medical and legal claims. A secondary claim made by the child’s parents amounts to an additional $60,000, but your homeowners liability coverage is now maxed out.
Without umbrella insurance, you would be responsible for covering these outstanding costs and may be forced to sell assets to come up with the money. With umbrella coverage, the extra $60,000 is covered and you would face no further out-of-pocket expenses.
Who Needs Umbrella Insurance?
Your home, condo, renters, auto, or watercraft insurance can provide a degree of protection. But there are instances when the additional coverage of an umbrella insurance policy may be beneficial. Some reasons you may want to consider umbrella insurance include:
Owning rental property
Having a high net worth
Coaching youth sports or volunteering at a nonprofit
Entertaining guests at home on a regular basis
Participating in extreme sports or dangerous hobbies such as skydiving
Being a public figure or social media personality
Having a swimming pool or trampoline at your residence
Owning a dog or other large or exotic animals
How Much Does Umbrella Insurance Cost?
How much you pay for umbrella insurance depends on several factors, most importantly the amount of coverage you buy. Insurers typically set minimum limits on this type of insurance, such as $1 million, but you may have the option to raise that amount to $10 million or higher. Premiums can range from $150 to $300 per year for a $1 million in umbrella coverage, according to the Insurance Information Institute (III), but can be higher depending on how many homes, vehicles, and persons you’re insuring. You may also be able to get a discount by bundling your umbrella insurance with other types of policies through the same insurer.
Learn More
For more information about homeowners insurance, see the following guides:
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For more information on other types of insurance, see the following guides:
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