Simply put, umbrella insurance provides an extra layer of liability protection on top of your existing insurance plans, such as home and auto. This added cushion serves to protect you and your assets if a claim or lawsuit exceeds your policy’s coverage. If your auto policy’s liability limit is reached due to high medical bills caused by an accident, umbrella insurance can cover the excess amount and keep you from going into debt.
For example, if you are at fault of a car accident that results in $800,000 in damage and medical bills to treat injuries and your auto policy only covers $500,000 in liability, then you would be responsible for the additional $300,000. If you don’t have the money to pay the difference out of pocket, you could have your assets, such as your home or retirement savings, seized to cover the cost. However, an umbrella insurance policy would protect your assets and cover the difference.
What Does Umbrella Insurance Cover?
Umbrella insurance covers anything that you could be held liable for, including injuries, property damage and lawsuits. This includes costs associated with an auto accident that you caused, someone getting injured while visiting your home or accidentally damaging someone’s property. It not only covers you but also damages and injuries caused by your children and pets.
If you own a rental unit, you may want to consider umbrella insurance as well to protect you against injuries that occur on your rental property.
Umbrella insurance also covers claims if you’re sued for libel, slander and defamation of character, which are not typically covered under a home insurance policy.
How Much Does Umbrella Insurance Cost?
Umbrella insurance is surprisingly affordable, especially considering the piece of mind that it offers. For an additional $1 million in coverage, policies typically cost less than $200 annually. The cost increases about $100 a year per $1 million in coverage.
Do I Need Umbrella Insurance?
While umbrella insurance isn’t required, it’s a good idea to have if you drive or own a home to protect yourself against potential lawsuits. People with assets, such as retirement savings, home equity and stocks, totaling more than the liability coverage of your auto or home insurance policy may find umbrella insurance particularly useful as a lawsuit could wipe out all your hard work.