Let’s imagine you’re close to retiring. You’ve worked hard, saved well, and your assets total over $1 million. Life’s good, right? But then, you’re in a car accident. You’re found at fault and the damages exceed $1 million. Your car insurance only covers a fraction. This could be a disaster, but not if you have umbrella insurance. This type of insurance steps in when your other policies reach their limits. It could save you from losing your savings due to one unfortunate accident.
So, what’s umbrella insurance? Unlike other insurance types that protect specific parts of your life, umbrella insurance is like a safety net for your whole life. It covers extra costs when you exceed the liability limits on your other policies. It’s a type of liability insurance, designed to protect you against lawsuits. Lawsuit damages can easily reach millions of dollars, far more than most homeowners or auto insurance policies cover. An umbrella policy prevents a massive lawsuit from wiping out your assets. It also protects you against being sued for damages other policies don’t cover, like accidents abroad or claims like defamation or invasion of privacy.
Umbrella insurance is versatile, protecting your assets from many common legal issues. But it doesn’t cover everything. It covers costs for bodily injury, property damage, incidents not covered by insurance, property owner liability, legal damages, and legal fees. However, it doesn’t cover damage caused by a business or business-related activity, liability under a contract, deliberate damage, or damage caused by restricted dog breeds. It also doesn’t cover damage to your person or personal property.
How does it work? Let’s go back to the car accident scenario. Your auto insurance policy covers the first $300,000 for the injuries and $100,000 damage to the car. That leaves you with $700,000 to pay. This is where your umbrella policy steps in. It covers the rest of your damages and even your legal bills. Thanks to your umbrella coverage, your home and retirement savings are safe.
Do you need umbrella insurance? If you have a lot of assets and not enough liability coverage to protect them in a lawsuit, it’s a good idea. Or if you’re at a higher-than-average risk of being sued, like if you spend a lot of time on the road or often host parties. Other factors that can increase your risk for a lawsuit include having a teenager or other inexperienced driver in your household, owning a swimming pool, dog, gun, treehouse, or trampoline, being a rental property owner, coaching kids’ sports, engaging in high-risk sports, or being a well-known public figure.
Umbrella insurance is less well-known than common types like health, auto, and home insurance, so you might have some questions. It generally costs between $150 and $400 per year for a $1 million policy. To buy it, you must already have auto or home insurance or both — and a lot of it. Most insurers won’t sell you an umbrella policy unless you carry the maximum liability coverage on your car insurance and property insurance — about $300,000 each. To figure out how much coverage you need, calculate your net worth and subtract your current coverage. The difference is the amount you have that’s unprotected.
Even if you’re a renter, you might need umbrella insurance. Renters insurance protects your property, but it doesn’t always protect you from liability. Umbrella insurance can protect you from a costly lawsuit. It also covers your family if they’re part of your household. It’s similar to excess liability insurance, but it provides additional protections.
In conclusion, a personal umbrella insurance policy is like an umbrella on a sunny day. You don’t expect to use it, but it’s better to have it and not need it than to need it and not have it. For a few hundred dollars per year, you can protect your retirement savings or your kid’s college fund from an unexpected lawsuit. The peace of mind that brings is well worth the cost.
