The Skinny on Umbrella Coverage

What is Umbrella Insurance?

The best way to think of umbrella insurance is as extra coverage in case your insurance maximums on your home or auto are reached and surpassed in an incident. Typically umbrella coverage is only needed or picked up by those who have assets in excess of $100,000 that can be sued for if their insurance will not completely cover an accident. For example; if you had a large vehicle and got into a accident with a smaller car and had liability insurance on your vehicle with limits of $100,000, their bills and expenses could easily surpass $100,000. Your insurance company will typically try to negotiate for you in this event, but if they are unsuccessful, you could find yourself personally liable for any expenses beyond what your policy covers. This can lead to a lawsuit in an attempt to recover damages for the other party. An umbrella insurance policy, typically built for just such an eventuality, would cover the losses starting at $100,001 dollars all the way up to your policy maximum.

How Much Does Umbrella Insurance Cost?

Surprisingly umbrella insurance is generally very inexpensive - usually costing less than the price of simply raising the coverage on your home or vehicle. The reason for this low-expense is due to the extreme unlikelihood that you would ever use the insurance, since most incidents will probably be covered by your homeowners insurance or the policy that you have on your vehicle. This allows companies to offer umbrella insurance in addition to your regular policy for what may feel like virtually nothing to your checkbook. Alternatively, if your insurer does not offer umbrella coverage, there are insurance companies who specialize in selling stand-alone umbrella coverage insurance.

Usually umbrella policies offer coverage somewhere in the range of $1,000,000 to $5,000,000 and have a very high deductible (like $300,000). The high deductible is typically covered by your insurance policy - in the previous example of the auto accident where you were at fault, if the hospital bills wound up being $800,000 and you only had a $100,000 liability insurance policy and a $1,000,000 umbrella policy, your auto liability insurance would cover the first $100,000 of the claim and that would also suffice as your deductible to pay the remaining $700,000 out of your $1,000,000 umbrella policy.

So Do I Need Umbrella Coverage?

When was the last time you heard of a jury awarding $2,000,000 or more in a lawsuit to an injured party? Probably not too long ago. Well that could happen to you, and even if you don’t own a home or other expensive valuables to protect, receiving such a judgment could well make you sorry that you never bothered to pay the minimal amount that an umbrella policy generally costs in premiums on a yearly basis. If you have assets, umbrella insurance is a must-have. If you don’t, it’s still something you might want to seriously consider.