Also known as personal liability insurance, umbrella insurance can be invaluable in the event that you’re liable for a claim that exceeds the limit of your primary liability policy, such as your auto insurance, homeowners insurance, and boat insurance. In addition to picking up from where your primary insurance leaves off, umbrella insurance also covers all legal expenses related to a lawsuit, as well as some liability claims that may not be covered by those policies, such as slander, libel, and false imprisonment.
If you’re a rental property owner, umbrella insurance offers liability coverage on top of the coverage provided by your renters policy. It’s worth noting that umbrella insurance provides coverage even when you’re outside the county, except for houses and vehicles owned under other nations’ laws.
Take note that before your umbrella insurance coverage kicks in, you may need to pay a specified amount of money called a “retained limit” out of pocket, meaning a retained limit is similar to a deductible.
Here are scenarios where umbrella insurance can be useful:
1. Your teenage son is involved in an auto accident, and the cost of property damage and injury to other drivers is higher than your car insurance liability limit.
2. An establishment sues you for posting a negative review of its services or products online.
3. A houseguest trips and falls and sues you for their medical expenses in addition to pain and suffering. Umbrella insurance will kick in if the claim exceeds the liability limit of your homeowners insurance.
What Umbrella Insurance Doesn’t Cover
Umbrella insurance policies don’t cover damage to your property or your own injuries –for that, you need other types of insurance such as collision coverage or health insurance. Umbrella insurance also doesn’t cover any liability that’s related to your business – commercial umbrella insurance covers business-related liability. Most policies also won’t cover any liability that stems from you breaching contracts that you’ve entered into. For instance, if a contractor you hired to remodel your kitchen sues you for non-payment of services rendered, your umbrella insurance won’t cover that claim.
Umbrella insurance also won’t cover claims that relate to you deliberately hurting someone or committing a crime. Some insurers also don’t cover certain types or sizes of watercraft, and others won’t cover them unless you have a basic boat insurance policy.
How Much Umbrella Insurance Should You Get?
It’s prudent to have an umbrella insurance policy that at least covers the net worth. To figure out the level of coverage you need, you can assess the value of all your assets. Then, you should evaluate what your existing policies cover and buy an umbrella insurance policy that covers the difference. You should also consider including your future earnings in your estimation, especially if you’re likely to earn more in the future.
Typically, umbrella insurance comes in million-dollar increments. According to the Insurance Information Institute (III), an insurance policy that provides $ 1 million in coverage costs anything between $150 and $300, so you’ll likely get extensive coverage regardless of what you choose.
Who Needs Umbrella Insurance?
Anyone who can be sued, which is basically any American adult, should carry some form of umbrella insurance coverage. Liability risk factors include, among others, owning rental property, hosting large parties, having a hot tub or trampoline, employing household staff, and being a public figure.