Your home or car insurance can protect you financially if you are responsible for hurting someone or damaging their property. But what happens if your liabilities exceed the coverage limits of your policy? That’s where umbrella insurance comes in. A personal general insurance policy can help protect your assets in the event of a major liability claim or legal suit.
What is an umbrella insurance policy?
General insurance (UI) is a strictly optional policy that acts as a secondary layer of asset protection beyond what may be provided by the personal liability portion (PLI) of your homeowner, auto, or other insurance policy. If your PLI reaches the maximum, but claims or lawsuits for injuries or property damage remain, umbrella insurance may cover the balance.
Depending on the insurer, you may be able to purchase $1 million or more of umbrella insurance coverage. Travelers, for example, offers UI coverage of up to $10 million, while Chubb has plans that cover up to $100 million. Regardless of the insurer, you’ll generally need to have a home, condo, renters, or auto insurance policy that includes $250,000 to $300,000 in liability coverage before you can buy an umbrella policy.
What does umbrella insurance cover?
- bodily harm to others, like a guest slipping on your wet patio or a family pet lunging at a passerby on your property.
- Damage to property that you and people covered by your policy (such as a spouse or child) inadvertently cause. Examples of this might include damage to someone else’s car if you are at fault in a crash or expensive school equipment that your child accidentally broke.
- Legal expenses arising out of a bodily injury or property damage claim, whether or not you are found at fault.
- Claims for libel, slander and personal defamationsuch as a lawsuit filed because of a post you made on social media.
What does umbrella insurance not cover?
While umbrella insurance can protect your assets, there are limits to what it covers. General coverage generally excludes:
- Damage you intentionally cause. This will not be covered by personal liability or general insurance because the incident could have been prevented. If you knowingly create an unsafe environment and a visitor is injured, you will have to pay the legal, medical and other expenses covered in a lawsuit.
- Liabilities arising from your business or occupation. If you want protection against potential business-related lawsuits or claims, you should consider a business liability insurance policy.
- Damage to your property. Umbrella insurance only applies to damage you cause to other people’s property. Damage to your property, such as a tree falling on your roof or a kitchen fire, should be covered by your homeowners insurance.
- Injuries you or members of your household sustain. These may be covered by your health insurance or the personal injury protection (PIP) portion of your car insurance.
How does umbrella insurance work?
Umbrella insurance covers the gap between your liability coverage and the outstanding costs associated with a claim. Suppose your son invites a friend to play on the trampoline in her backyard. As he bounces, the friend falls and is seriously injured. Your homeowners insurance includes $100,000 in personal liability insurance coverage with a $5,000 deductible. You pay the $5,000 and your insurance covers the remaining $95,000 in medical and legal claims. A secondary claim by the child’s parents adds up to an additional $60,000, but their homeowner’s liability coverage is now maxed out.
Without umbrella insurance, you would be responsible for these outstanding costs and may be forced to sell assets to get the money. With blanket coverage, the extra $60,000 is covered and you won’t face any more out-of-pocket costs.
Who needs umbrella insurance?
Your home, condo, renters, auto, or boat insurance can provide a degree of protection. But there are cases where the additional coverage of an umbrella insurance policy can be beneficial. Some reasons you may want to consider umbrella insurance include:
- Owning a rental property
- Have a high net worth
- Coach youth sports or volunteer at a non-profit organization
- Entertain guests at home regularly
- Participating in extreme sports or dangerous hobbies such as skydiving
- Being a public figure or social media personality
- Have a swimming pool or trampoline at your residence
- Have a dog or other large or exotic animals
How much does umbrella insurance cost?
The amount you pay for umbrella insurance depends on several factors, the most important being the amount of coverage you purchase. Insurers typically set minimum limits for this type of insurance, such as $1 million, but you may have the option to increase that amount to $10 million or more. Premiums can range from $150 to $300 per year for $1 million blanket coverage, according to the Insurance Information Institute (III), but can be higher depending on the number of homes, vehicles, and people you’re insuring. You may also be able to get a discount by combining your umbrella insurance with other types of policies through the same insurer.
For more information on homeowners insurance, see the following guides:
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For more information on other types of insurance, see the following guides:
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