Your personal insurance policies, including home and auto insurance policies, have liability coverage limits included. However, if you lose a liability lawsuit, these policies may not cover you fully. In such a situation, financial implications could mean loss of savings and personal assets. Umbrella insurance is meant to help protect you from financial impact. Below is a detailed look at how umbrella insurance works, what it typically covers, why you may need it, and how much a policy is likely to cost.
What Is Umbrella Insurance?
Umbrella insurance takes over from where your primary liability insurance policies stop. This means that before you can purchase umbrella insurance, you must first purchase an underlying policy such as a car, home, or boat insurance. Umbrella insurance also covers liability claims that might not becovered by your existing policies, such as libel and slander. Umbrella insurance can also be excess over your renters policy's liability coverage limit.
Here is how umbrella insurance works in real-life situations: For example, let’s say an auto insurance policy's bodily injury coverage limit is $250,000 per person and $ 500,000 per incident. The auto policy also comes with a $100,000 property damage coverage per accident. This coverage may be sufficient in a minor or moderately severe crash or collision.
On the other hand, if a person is found to be legally liable for a catastrophic car crash involving multiple cars and individuals, the liability coverage noted above will likely not be enough to cover medical expenses for several individuals' hospital stays and multiple totaled vehicles. If you're sued for the damages and losses, you stand to lose your checking accounts and liquid savings, future earnings, retirement savings, or even your house. In such a scenario, your umbrella insurance provides protection beyond the limits of your auto insurance policy. It’s important to talk with your trusted Tompkins Insurance advisor to determine what your policy does or does not cover.
What Umbrella Insurance Generally Covers?
Umbrella insurance is meant to protect you from financial fallout emanating from lawsuits and claims that exceed your existing liability coverage when you are found to be legally liable. It's not meant to protect you from physical danger or insure your physical home and vehicle (for that, you need health, homeowners, and auto insurance products).
Generally, umbrella insurance compensates for liabilities related to:
- Property damage
- Third Party injuries
- Lawsuits
- Personal liability situations
In addition to covering the policy holder umbrella insurance typically also covers other members of the household that are provided coverage on your underlying policies. An umbrella insurance policy may also covera person globally, with some exceptions. Therefore, as always we recommend that everyone reads their policy's fine print or consult an insurance advisor for full details.
Here is what umbrella insurance generally doesn't cover:
- Here is what umbrella insurance generally doesn't cover:
- Damage to personal property. Umbrella insurance is a liability policy. This means it covers damage to other people's property when a person is found to be legally liable. It’s important to ensure your existing insurance policies sufficiently cover your possessions and property.
- Liability emanating from professional or businesses activities (for that, the business needs, business liability insurance).
- Liability emanating from armed conflicts and war.
- Criminal activities
What about Deductibles?
You may be required to pay a deductible before your umbrella insurance kicks in. For instance, say you're sued due to an accident that took place in your home and required to pay $500,000 in damages. If your homeowner's policy comes with $ 150,000 in personal liability coverage and a $1,000 deductible, you'll need to pay the deductible before your homeowner's policy kicks in. Your umbrella will then kicks in and cover the balance and your legal expenses relating to the lawsuit.
How Much Does It Cost?
Insurance Information Institute estimates that an umbrella policy that provides $1 million in liability coverage costs $150 - $300 annually. Umbrella insurance policies are relatively affordable, making them an ideal option for protecting your assets in an increasingly litigious society. It’s important to note that many insurers require policyholders to carry significant minimum liability coverage through their primary policies. Generally that limit is around $250,000
Is Umbrella Insurance Worth It?
As with most financial decisions, your choices should be hinged on your needs and risk tolerance. While virtually anyone can be sued, some people are at a greater risk than others. If you're involved in activities that increase your vulnerability to excess liability, you should consider getting an umbrella policy because of your elevated risks. Liability risk factors include: hosting large parties, owning a hot tub or trampoline, owning rental property, and being a famous public figure. Additionally, if your property has a swimming pool, if you have a teen driver in your family, or if you own a dog, you may be much more exposed to liability risks. In a nutshell, the higher your chances of being sued, the more you need umbrella insurance.
Even if you're a careful individual with great intentions, you may end up being sued and held liable for massive damages. If you find yourself in such situations, umbrella insurance can protect you from financial loss. At Tompkins Insurance Agencies, we will help you find an umbrella insurance policy that suits your needs and budget. Contact us today to learn more.
