Understanding Umbrella Insurance: Comprehensive Liability Protection

Umbrella insurance is the insurance that is designed to give you liability protection beyond what your other insurance policies already provide. While your existing policies will cover some liability costs, they put limits on how much money they will spend on liability, leaving you with the remainder of the bill. Umbrella insurance will help you cover the difference. While umbrella insurance is limited, it should be able to cover all but the steepest liability costs.

What Umbrella Insurance Covers

Umbrella insurance will cover liability costs that your home insurance and vehicle insurance won’t cover. Because of this, you must have either home insurance or vehicle insurance policies (or both) that offer liability coverage in order to qualify for umbrella insurance. Depending on the insurance company, you may also need to make sure that the amount of coverage offered by your insurance policies is no less than a certain amount (usually a five-digit figure). Umbrella insurance can only be used once the liability coverage from other policies is completely exhausted. In most cases, it kicks in automatically.

Umbrella insurance covers the same claims as your existing home and vehicle insurance, as well as some claims that they may not necessarily cover.  This includes:

Bodily injury – covers the costs of damage to another person’s body. Depending on the terms of the lawsuit, this can include another person’s medical bills.

Property damage – covers the costs of damage to another person’s property.

Rental units – covers the costs of damages that occurred on your rental properties.

Personal claims against you – this includes claims of libel, slander, malicious prosecution, and unlawful detention.

Umbrella Insurance Coverage and Costs

While umbrella insurance is fairly generous, there is only so much the policy will pay. Usually the number is between one and two million dollars, but some policies go as high as five million. The premiums are usually $200 to $300 per year, so compared to other types of insurance, umbrella insurance is fairly affordable.

Is Umbrella Insurance Right For You?

While the umbrella insurance can be beneficial, it is not necessarily something you need. It is entirely possible that your home and vehicle insurance are already doing an adequate job of covering your liability costs. If that’s the case, umbrella insurance becomes a burden and a waste of money. To find out if you need umbrella insurance, take the following steps:

Add up your assets – add together the worth of your home, the money in the bank, stocks bonds and other assets and available funds from your 401(K) retirement plan and other savings.

Look up your liability coverage – take a look at your home insurance and your vehicle insurance policies and check their maximum liability coverage.

Run comparisons  - compare your total assets with the maximum liability coverage for each policy. If the former exceeds the later, you will need umbrella insurance. You should also get umbrella insurance if the two numbers are equal or minimal, otherwise, you may wind up weathering the lawsuit, only to find yourself with little to no assets.