There are some types of insurance that are required by law and lien holders and other types of insurance that just make sense to have. Umbrella insurance falls into the latter category. Nobody will make you buy an umbrella policy, but doing so could save you from total financial ruin.
Umbrella Insurance Explained
Umbrella insurance is a form of liability coverage. It is designed to provide additional liability protection above and beyond the coverage traditionally provided by auto, home, and renter’s insurance. This protection kicks in when you reach the liability limits on your other insurance policies. For example, if the liability limit on your auto policy is $300,000, the deductible on your umbrella insurance policy will most likely be $300,000.
You might be wondering why you would ever need that much liability coverage. The fact is that it is impossible to predict how much a judge or jury may award an injured person. It is not unusual to see judgments in the millions of dollars nowadays. If you are sued for negligence, the current limits on your auto or home policy may not be enough to cover judgments against you or your attorney’s fees. In such cases, your personal assets could be seized to cover the costs of your negligence.
An umbrella insurance policy ensures that you do not need to worry about losing your home, savings, and other assets. The average umbrella policy will pay defense costs and provide coverage for many lawsuits that are not covered by primary auto or home policies. Most umbrella policies will also pay for property damages and an injured person’s medical bills and lost wages that result from your negligence. Other things that may be covered under an umbrella insurance policy include libel, slander, false imprisonment, or eviction.
Umbrella Insurance Myths
There are several myths associated with umbrella insurance. One of the biggest is that umbrella insurance is only for the rich. The truth is that umbrella insurance can provide needed protection for every policyholder. We live in a litigious society. Anyone can be sued at any time. And with judges awarding larger amounts of money than ever before, it makes sense to buy additional liability coverage to protect your assets.
Another misconception is that umbrella insurance is expensive. Umbrella insurance premiums are actually quite affordable, and in most cases, cost less than it would to purchase additional liability coverage on auto and home insurance policies. According to the Insurance Information Institute, $150 to $300 per year can buy $1 million worth of personal liability protection. Every million after that typically costs an additional $50 per year. In other words, umbrella insurance is one of the best buys on the insurance market.
Your current insurance provider will be able to give you an umbrella insurance quote. You can also use comparison sites online to get quotes from several policy providers at one time. Most insurance agents and companies will ask you a range of questions to determine your personal risk and help you decide how much coverage you need.
This is a guest post from Bailey Harris, who writes about home owners insurance and other insurance topics.
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My umbrella policy is for $1M and runs $187/year. I have, however, had to increase my coverage to the maximum on all homeowners and auto policies. So, there was additional increased costs associated with doing that. I sleep better at night, though, so it is worth the cost.
I have umbrella insurance with the same company that provides my auto insurance. I believe that my $1M umbrella policy is about $150 a year. But in order to get umbrella coverage, I had to increase my auto policy to provide $300K in liability. Is that true with most umbrella policies?
It varies from company to company. Some require $300,000 and some require $500,000. Other companies let you increase your auto policy to much higher limits, but this may be a more expensive way to go. Decide what you need in the way of liability limits and ask for quotes based on that total amount.
Bailey did a nice job laying this out, but you need to check with a qualified insurance agent for your specific situation. Personally, I like Independent Agents who represent several companies so there will be options available. If you know what kind of accident you might cause (auto accident killing a young doctor with 3 young children going to college) then you have a better idea how much coverage you need. Therein lies the problem: You don’t know how much liability insurance you’re going to need. So, to be careful, buying an umbrella policy is a good way to go.
This article seems out of date. Prices have gone up considerably and no longer $150’s to $300 /yr for a policy.
Would have been great if author had suggested some possible search sights to check for an umbrella policy. Most of the usual term life insurance websites do NOT offer umbrella policies.
Rates for umbrella insurance coverage are cheap. If you have assets that you want to protect, umbrella coverage may be an ideal option. Make sure you request to have all your cars, home and toys protected.
I have $2M of umbrella insurance and the premium is in the $300’s. It cheap enough that I don’t worry about it. My net worth is approaching half million, mostly in protected asset classes like retirement accounts and equity in my home (in a state with a homestead exemption) but my salary is pretty high. Wages can be garnish about 25% in most states and bankruptcy is harder to get full discharge if you have an income. So its worth it to me.
Hi Dave,
Where did you get your insurance? Allstate asks over $500 for 2M coverage.
One reason this is a litigious society is because anyone can file a lawsuit with no risk to themselves if they lose (except their own legal costs). In England, if the plaintiff loses, he must also pay the defendant’s legal fees.
This would be a HUGE deterrent in this county. People would think twice and then thrice before suing on a whim in hopes of a windfall.
We went most of our lives without having umbrella coverage, but do have it now. A vice-president at my old company recommended it to me when my responsibilities expanded to the point that I was responsible for hiring and firing. Most companies will cover the employee as long as the employee is following company policy, so this may have been overkill – but it gave us more of a sense of security.
All insurance to me seems like ‘protection’ money – as in the old gangland movies. That said, covering risks to your wealth or financial well-being is prudent and advisable.
I do think umbrella insurance makes sense in some situations.
But the chances of getting sued aren’t really as much as TV and movies make us think. There really isn’t that much risk of losing large lawsuits. The chances of losing a $1M or larger lawsuit are around 1 in a million. Thats similar to the chances of winning the lottery.
We have umbrella insurance and I hate it. Why do I have to pay for this? We need to cut down on litigation like KM said above.
Like any insurance that covers catastrophic events, you should always be glad that you aren’t using it. 🙂
I still think people should cut back on the suing of each other. It feels like you can’t step anywhere for the fear that someone will be pissed off and sue you. And if you are the one who is truly wronged, you are not getting anything. When my dad got hurt in an accident (he was standing at a red light when someone hit him), he barely got enough to cover his lawyer bills, let alone the medical bills, lost wages, a totaled car… Seems unjust, especially considering the other person (a 16 year old girl) wasn’t even insured. Yet, someone with a good lawyer can take everything away from you if you say something they don’t like.
Sorry to hear about your father’s accident, and I agree about the suing part.
I wonder why the frequent suing is so bad in the United States, where the vast majority of the time, only the lawyers win.