More on Home Insurance
More on Home Insurance
Umbrella insurance is enhanced liability protection that supplements your homeowners insurance and auto insurance policies.
In standard auto insurance and homeowners insurance, your personal liability coverage protects your combined assets against expensive litigation. That means if you crash into another car and injure the driver or a houseguest suffers a bad fall in your home, you’re covered by auto and home insurance in the event the injured party elects to sue you for repairs, medical expenses, or lost earnings.
A standard homeowners or auto insurance policy lets you carry up to $500,000 in liability coverage, but that may not be enough if you have several expensive assets. If your combined assets exceed your standard coverage limit, you should consider a personal umbrella policy. Also known as umbrella insurance, it provides an additional layer of liability protection against potentially devastating liability claims.
If you’re sued for an amount that exceeds your primary liability coverage limits, umbrella insurance bridges the gap between what is covered and what is still owed
You typically need a certain amount of homeowners and auto insurance before you can get a personal umbrella policy
$1 million in umbrella insurance coverage is anywhere from $150 to $300 a year
Umbrella insurance helps you in a couple of different ways:
It provides more enhanced liability protection than standard coverage
It increases your liability coverage limits in the event that you’re sued for an amount that exceeds your standard coverage limit
Personal umbrella policies are mainly sold in increments of $1 million, up to $5 million. Some insurance companies, like Travelers, sell umbrella policies with up to $10 million in coverage.
Umbrella coverage works like this: say the third floor balcony of your home collapses onto the ground floor during a party and several people are badly injured. It’s determined that you’re liable for $400,000 in injury expenses, plus the injured parties are collectively claiming around $250,000 in lost earnings for their extended period of time out of work. That means you’re on the hook for a $650,000 liability claim.
The problem is you only have $500,000 in personal liability coverage in your homeowners policy, which means you need to look elsewhere for the remaining $150,000. Umbrella insurance pays the difference between what your initial policy covers and what you still owe.
Keep in mind that a minimum amount of personal liability coverage in both your home and auto insurance policies is needed before you can get umbrella insurance. Your insurer will typically require one of the following coverage combinations:
$300,000 per person and $300,000 per accident ($300,000/$300,000) in bodily injury coverage and $100,000 in property damage coverage in your auto policy, plus $300,000 in personal liability coverage in your homeowners policy or
$250,000/$500,000 in bodily injury coverage, $100,000 in property damage coverage in your auto policy, plus $300,000 in personal liability coverage in your homeowners policy
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In addition to providing you with higher liability coverage amounts, umbrella insurance also provides you with more robust protection.
For example, your homeowners insurance liability coverage may exclude dog bites from dangerous breeds or trampoline injuries from coverage. Slander, libel, and defamation of character are also excluded. Umbrella insurance essentially expands your liability protection to cover these liability risk exposures, in addition to others.
|What umbrella insurance covers||What umbrella insurance doesn't cover|
|Injury to others||Your own personal property|
|Damage to the property of others||Business losses|
|Legal fees||Criminal or intentional actions|
|Tenant damage (if you're a landlord)||Any contracts you've entered into|
|Lawsuits related to slander, libel, or defamation of character|
To figure out whether or not you need a personal umbrella policy, you’ll want to take the following factors into consideration.
The biggest thing to consider is what your total assets amount to. If your two homes, your cars, your boat, your income and savings, and the rest of your assets add up to $3 million and you only have the maximum $500,000 in liability coverage for your homeowners and auto policies, that’s potentially $2.5 million in unprotected assets that could be wiped out from under you in an expensive lawsuit.
You should also take your future earnings into consideration when determining your coverage needs. Along with your assets, the plaintiff is allowed to collect from you in a number of other ways on a settlement, including by taking a portion of future earnings. In fact, federal law allows for a maximum garnishment of 25% of an employee’s net wages. For that reason, homeowners in medical school or law school who expect a hefty raise after graduation may want to consider an umbrella policy.
If your home has a pool, a trampoline, a tree fort, or you have a pack of wild huskies as pets, you may want to consider a personal umbrella policy. Simply put, the more risk you’re associated with, the more you’re liable for.
According to the Insurance Information Institute, you can buy a $1 million personal umbrella policy for anywhere from $150 to $300 per year. The amount you pay gradually decreases after the first million.
Most major insurance providers sell personal umbrella policies. Some insurers may offer generous discounts if you buy umbrella insurance along with another type of property coverage.
Pat Howard is a homeowners insurance editor at Policygenius in New York City. He has written extensively about home insurance cost, coverage, and companies since 2018, and his insights have been featured on Investopedia, Lifehacker, MSN, Zola, HerMoney, and Property Casualty 360.
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