Everything you need to know about umbrella insurance
If you have high net worth and a significant amount of assets, umbrella insurance may be worth considering. It is simply to prevent you from serious financial damage in the event of a lawsuit by covering the gaps in your existing auto and home insurance. Here’s a breakdown of what umbrella insurance is and how to determine if it’s the right choice for you.
What is umbrella insurance?
Umbrella insurance is liability insurance that is in addition to other policies you already have, such as home and auto insurance, and provides coverage for things that are not included in those policies.
âUmbrella insurance is generally considered excess insurance,â says Kathryn Sopko, insurance broker with A Plus Insurance in Colorado. âThis coverage would be in addition to your auto, home, boat, motorhome or motorcycle insurance policies,â explains Sopko. She says people with multiple assets, like expensive cars, a boat, and other recreational vehicles, are the most common clients for umbrella insurance.
âI like to think of umbrella insurance as insurance for your insurance,â says Richard Johnson, director of communications and public affairs at the Insurance Council of Texas. âIt’s extra peace of mind and can save someone from serious financial hardship if something catastrophic were to happen,â Johnson adds. In a nutshell, it’s more liability coverage than you already have with home and auto insurance.
What does umbrella insurance cover?
Umbrella insurance covers incidents such as damage to another person’s property, lawsuits, personal liability and personal injury. While most auto and home insurance policies provide coverage for these incidents, framework insurance would cover any damage or liability in excess of what these policies would cover.
âUmbrella insurance covers judgments or settlements arising from allegations that you are responsible for damages caused to another party,â says Robert Raymond, vice president of private client advisers at HUB International, a brokerage firm. Illinois-based full-service insurance. Umbrella insurance also supports your legal defense in situations covered by your policy. âSo in addition to managing the costs associated with a claim and its legal proceedings, an appeal to your insurance company can take your situation from ‘What should I do? To ‘I am well cared for,’ “he explains.
According to WalletHub, umbrella insurance also covers a wide range of scenarios such as libel and slander, false arrests, personal psychological damage and mental anguish, and malicious prosecution. Situations that are NOT covered by umbrella insurance include: bodily injury or damage to your property, criminal acts, and any liability related to your business.
How much does umbrella insurance cost and what coverage do you need?
The average cost of umbrella insurance depends on the state you live in and the coverage you need, Sopko explains. âThe most common premium amounts will vary between $ 150 and $ 300 per year,â she says.
The recommended amount of coverage is usually $ 1 million, as most umbrella policies start at $ 1 million and go up to $ 10 million in coverage (or more). âI’ve written policies with $ 1,000,000 coverage with a cost as low as $ 0.25 per $ 1,000 per year,â says Brent Dickerson, owner and certified financial planner at Over Coffee Financial in Ohio . âThat works out to $ 250 a year. Umbrella is one of the cheapest insurance, for $ 1,000, you can buy,â says Dickerson.
To determine the amount of coverage you need, you must first consider all of your assets. “You can calculate the amount of umbrella insurance coverage you need by adding up the value of each of your assets,” says Francis Locknear, founder and CEO of online insurance information guide, The Cost Guys. âNext, calculate the total liability insurance you already have from your current policies. Any difference between your assets and your liability insurance coverage equals the overall insurance coverage you should get, âsays Locknear.
Is Umbrella Insurance Worth It?
Umbrella insurance can be a worthwhile investment if you have a lot of assets that exceed the coverage limits of your underlying home and auto insurance policies, or if you are at a higher risk of being sued. âIf you have a family and have multiple assets, it would make sense that you want the most protection for these things,â Sopko explains.
Even for those with lower assets, Raymond recommends at least having umbrella insurance for your estate amount. “It’s one of the few policies that can protect you against completely unforeseeable losses and ensure that your personal possessions – and years of hard work – aren’t reduced to an accident, injury or other claim,” explains Raymond. He says that with the relatively low cost of a basic umbrella policy, everyone should have some sort of protection.