Should I Have Umbrella Insurance?

Quick Answer

You should consider an umbrella policy if your assets are valued at more than your current insurance policies’ liability limits. For example, your auto insurance may insure you up to $300,000 per accident, but if you own assets such as a home, someone could sue you for more than your policy’s liability limit and threaten your home.

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Umbrella insurance is a type of insurance that provides extra coverage beyond the limits of your existing policies, such as homeowners insurance or auto insurance. If you need coverage over the maximum limits of your existing policies, an umbrella policy can help shield you from legal trouble or excess costs.

How Umbrella Insurance Can Help Protect You

Umbrella policies are designed to protect your assets from lawsuits if you can legally be held liable for an incident such as a car accident or a dog bite and the resulting costs exceed your current coverage limits.

In particular, if your current assets are more valuable than the coverage limits on your insurance policies, umbrella insurance may protect your home, savings, vehicles and more.

Consider this example: In the event you are at fault for a car accident that racks up $1 million in medical bills for the other driver but your car insurance policy limits end at $300,000, your umbrella policy can fill in the gap in cost and prevent further legal action against you to recoup costs from your assets, such as your home.

Umbrella coverage is a way to fill gaps left by your auto or home insurance as well as provide some coverage for items you may not specifically have coverage for. Some examples of events umbrella insurance can protect you for include:

  • Pet problems, such as your dog injuring a person.
  • Hobbies and volunteering where another person is injured and you are liable.
  • Your child's driving and any accident they may cause.
  • Incidents that happen overseas for which you are liable.
  • Damage to rentals such as mopeds or boats you use when on vacation.
  • Claims of slander or libel against you.
  • Court costs associated with defending yourself against liability.
  • General excess costs from auto or homeowners claims that exceed your current policy limits.

To assess your coverage needs, consider the total value of your assets. Think about what you may be required to liquidate in the face of a lawsuit or a high cost of damages. If the value of your assets far exceeds your existing coverage limits, umbrella insurance can protect you.

Pros and Cons of Umbrella Insurance

When considering whether to purchase extra insurance, you'll need to decide if the cost is worth the potential peace of mind. Weigh these pros and cons during your purchasing decision:

Pros Cons
Increased protection from legal and financial liabilities Increased costs
Proportionately low costs Can be difficult to accurately calculate needed coverage
Potentially significant coverage Still has limits that may be exceeded by catastrophic incidents

The main benefit of umbrella insurance is your increased protection from legal and financial liabilities in the event you are sued and found liable for an accident, injury or other damage.

Unlike auto or home insurance policies, which tend to have lower coverage limits, umbrella insurance coverage can be significant. These policies allow you to purchase coverage into the millions of dollars, which can protect all your assets. For example, Farmers Insurance offers umbrella policies up to $10 million in coverage.

Adding umbrella insurance does increase your overall insurance costs, however. Unlike homeowners insurance or auto insurance policies that are mandated by a lender or state law, umbrella insurance is completely optional, which may factor into your decision.

Luckily, pricing on umbrella policies is proportionately low. Policyholders may be able to secure $1 million of coverage for as low as $150 in annual premiums. For increased coverage, you could expect to pay about $100 in additional premiums per million dollars of umbrella coverage.

That said, to accurately calculate the coverage you need to purchase, you'll need to carefully consider the value of your assets. If you undervalue your assets just to reduce your premium costs, you could stand to lose assets after an expensive legal ruling.

Where to Get Umbrella Insurance

To buy umbrella insurance, you can contact your existing insurer or insurance agent to see if they offer umbrella policies. Some companies may require you to already hold a policy—such as an auto policy—with them before they will permit you to purchase umbrella insurance.

But like other insurance comparisons, you can reach out for a quote from several companies and compare which offers the best policy and price.

Protect Your Assets

Umbrella insurance is customizable coverage that offers flexibility and protection in the face of legal uncertainties.

If you are concerned about the coverage limits from your traditional auto or homeowners insurance to protect your assets in the case of being found liable for an incident, it may be worth talking to your insurance agent about an umbrella insurance policy.

Deciding to spend a little extra for better insurance coverage can be difficult when budgets are tight. Make some room in your wallet when you use Experian's auto insurance comparison tool to compare your current policy apples to apples with coverage from over 40 top insurers. Customers who find savings average $961 in savings per year.

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