When was the last time you were caught in the rain without the right gear? Did getting drenched change the way you thought about preparedness? Maybe you went out and bought seven umbrellas and put them everywhere you might need one. In your car, in your bag, a few right by the door just in case. Think of umbrella insurance the same way. You want it handy for when you need it, not after you’re already wet.
Umbrella insurance is liability insurance that exceeds the specified coverages of your other policies and can cover you for losses not covered by your primary policy. A good rule of thumb is to carry an umbrella policy for at least $1 million, but that number could be higher depending on your finances and potential risks.
What does umbrella insurance cover?
Umbrella insurance is personal liability coverage that provides protection against claims that exceed your basic homeowners, auto, or other insurance policies. The right policy can shield your savings and guard your future income from becoming garnished in the event of an accident that results in a claim or lawsuit against you. Something to keep in mind, too, is that beyond the policy holder, umbrella coverage also covers other members of the family or household.
Common Coverage areas:
- Bodily Injury – if someone is injured on your property, umbrella insurance will help cover any medical bills or lawsuits that exceed your homeowner’s policy limits.
- Property Damage – If you are at fault in a large auto accident, umbrella insurance can help cover any costs after your auto policy has been exceeded.
- Reputational injury – Umbrella insurance can cover you in the event you are accused of and lose a lawsuit for defamation, libel, or slander.
- Uncovered Court Costs – Umbrella insurance can help with fees associated with defending yourself against any of these claims; costs which are not typically covered under your basic insurance policy.
How much umbrella insurance is recommended?
As mentioned, a good rule of thumb is for a person to carry at least $1 million worth of umbrella coverage. Even if umbrella insurance is not a high priority for you, it may still be in your best interest to speak to an agent. Then, you can better understand what risks you have and what factors or behaviors you should be aware of. This will help you mitigate the likelihood of being involved in a lawsuit.
How is the amount of coverage for an umbrella policy calculated?
The amount needed is an amount determined by these factors:
- net worth (your financial and non-financial assets minus your financial liability)
- personal equity
- retirement plans
- liability limits of current insurance policies
What are common circumstances that put people at a higher need for an umbrella insurance policy?
Some policy holders are more likely to need umbrella coverage than others. Beyond the amount of financial assets you are protecting, you should also be looking at what risk factors you have.
Here are some common circumstances that increase a person’s risk:
- Owning Property – by owning property, you are liable for accidents or injuries that occur on the property
- Renting Property – having rental property can be seen as a great investment, but it is also inviting a higher risk of liability
- Recreational Risks – things like pools, hot tubs, and trampolines increase the likelihood of an injury on your property and opens you up for potential lawsuits
- Pet Ownership – dogs are a man’s best friend, they say, but pets also represent risks of injury and property damage that may not otherwise be covered
- Teenagers – whether they are inexperienced drivers, have rambunctious tendencies, or are prone to accidents, your kids can elevate your risk of lawsuits
Who should consider umbrella insurance policies?
Umbrella insurance can help prevent the policy holder from losing all their assets or savings due to a large claim or lawsuit. While some are at a higher risk than others, a common recommendation is that people carry at least $1 million in umbrella coverage. The good news is that these policies are typically not as cost prohibitive as one might think, and can be there to brace you against a larger than expected storm.
If you are looking for more details about umbrella insurance, your risk level, and quotes contact our office: