Umbrella insurance can provide extra protection beyond what’s covered by your basic insurance.
Nobody wants to be liable for more damages than their insurance covers. That’s a sticky situation that could result in a huge hit to your net worth.
To avoid getting into debt because of an accident, consider taking out an umbrella insurance policy. It’s not mandatory coverage, like liability coverage — but getting it may provide you peace of mind.
What is umbrella insurance?
Umbrella insurance protects you beyond the coverage offered by your basic insurance. It’s especially recommended for individuals with significant assets — those who stand to lose a lot from getting sued.
Umbrella insurance will pay for what you owe beyond what’s covered by your home, auto or renters insurance. It can cover you for a wide range of scenarios:
- You’re at fault in a car accident and your costs exceed your auto insurance limits.
- Your child gets into a fight at school, and another child’s parents sue you.
- A worker on your property injures himself and seeks compensation for his medical bills.
- You’re sued for libel.
Before you can buy umbrella insurance, insurers will require you to already have significant coverage under your auto or homeowners insurance.
Does it come with a deductible?
If your basic insurance policy — auto insurance, homeowners insurance — covers part of what you owe, umbrella insurance doesn’t have a deductible. However, if your basic insurance doesn’t pay for anything, you’ll pay a deductible.
What is a deductible?
The deductible is what you’ll pay before your insurance company will pay a claim.
Let’s say you file a claim to your insurance company for a $5,000 car repair bill. Your insurance covers you for that amount, but it includes a $500 deductible. This means you must pay $500 out of your own pocket before your insurance will cover the other $4,500.
Umbrella insurance in action
Your auto insurance covers you up to $500,000 in the event of bodily injury to others in a car crash. But what if you cause a multicar crash and the resulting medical expenses total $750,000? You’d be on the hook for $250,000.
If you have umbrella insurance, you could be covered for that extra $250,000. For example, your umbrella insurance could offer bodily injury liability of up to $500,000.
Why should I buy umbrella insurance?
Umbrella insurance isn’t mandatory, but it could offer peace of mind. It gives you extra protection if you find yourself liable for more damages than your basic insurance covers.
To answer whether you need umbrella insurance, look at the terms of your current insurance policies. If you’re comfortable with the limits you’re insured for, then you might forgo umbrella insurance. Otherwise, it could protect you from heavy asset losses.
How much does umbrella insurance cost?
A $1 million umbrella insurance typically costs between $150 and $300 each year. The exact cost depends on your personal profile, such as your age and where you live.
How do I buy umbrella insurance?
Chances are your current insurer will offer it — contact them and ask for more details. You’ll most likely need an existing insurance policy with the provider in order to take out an umbrella policy.
Umbrella insurance isn’t mandatory, but it could protect you if you’re liable for large expenses that your basic insurance doesn’t cover.