Are you worried you don’t have enough insurance? Do you already carry maximum limits on your other insurance policies or worry about the cost of bumping up all of your different coverages? If so, an umbrella insurance policy may be right for you.
What is Umbrella Insurance?
An umbrella insurance policy gives you additional liability protection. It’s also sometimes called excess liability coverage because it provides liability coverage for claims over your primary insurance. For example, if you have $300,000 in liability coverage in your auto insurance policy but get sued for $1 million for causing a severe accident, your umbrella insurance can cover the remaining $700,000.
Why Do You Need Umbrella Insurance?
While your other insurance policies might have limits, those limits are on what the insurance company will pay, not on what you could be responsible for. If you’re sued for an amount more significant than your insurance coverage and lose, you’d have to pay the amount not covered by insurance on your own. You may have to sell your home, retirement investments, or other assets, or you could have your wages garnished to cover the debt.
While you may think bankruptcy could be an alternative, there are often restrictions on what types of court judgments you can eliminate in bankruptcy. This is especially true of the kind of personal injury claim that you’d need umbrella coverage for.
Further, if you have no assets today but expect your income to increase in the future, you’d still have to pay that judgment in the future, and it would likely be ruining your credit score until then. This category can include people early in a professional career or still in school with great future earning potential.
How Does Umbrella Insurance Work?
An umbrella insurance claim works just like any other insurance claim. The difference is the order the insurance companies pay in. First, your primary insurance company pays up to that policy’s limits. The umbrella insurance policy then covers the difference up to your umbrella policy limit.
What Types of Insurance Does Umbrella Insurance Work With?
The most common types of insurance people add umbrella insurance to is homeowners’ insurance and auto insurance. You can also use umbrella insurance to supplement policies such as renter’s insurance, watercraft insurance, motorcycle insurance, and more.
What Are the Requirements for Umbrella Insurance?
The main requirement for umbrella insurance is that you already have a primary insurance policy with minimum limits. For example, the umbrella insurance company might require you to have both homeowners’ insurance and auto insurance with at least $300,000 in liability coverage on each policy. The exact limits vary based on each umbrella insurance company.
If you don’t have enough liability coverage on your primary policy, the umbrella insurance company may decline to sell you a policy or exclude certain types of claims. If you later drop your liability coverage below what your umbrella policy requires, your umbrella policy may not cover you for any amount.
Does Umbrella Insurance Provide Any Primary Coverage?
Some umbrella policies may offer primary coverage for less common torts that may not be covered by your homeowners’ insurance or other coverages. This might include things like libel, slander, and false imprisonment. What, if any, primary coverage you have depends on your specific umbrella insurance policy. You’d also generally still need to have the minimum required homeowners’ insurance and auto insurance coverage.
Does Umbrella Insurance Cover Business Activities?
There are two types of umbrella insurance coverage. Personal umbrella insurance policies add to your homeowners’ insurance, auto insurance, and other personal insurance policies. Business umbrella insurance policies add to commercial general liability and other business insurance policies.
The main thing to understand is that a personal umbrella policy generally won’t cover any type of business activity. If you pick up a side gig or run a business out of your home, don’t assume your umbrella insurance or homeowners’ insurance will cover you — they probably won’t. Sometimes you can add a rider or get a bundled policy to cover side gigs and more casual business activities along with your personal insurance needs, but always talk to your insurance agent to make sure you have all of the coverage you need.
How Much Umbrella Coverage Do You Need?
Umbrella insurance policies generally start at $1 million and can go up to $10 million or higher depending on the insurance company. There are two ways to look at how to choose your umbrella insurance limits.
What Can You Be Sued For?
You may think of yourself as a careful person who would never hurt a fly. However, accidents still happen from just one mistake, no matter how careful you are. A wrongful death or disability claim from a car accident or other accident could result in a court verdict worth millions of dollars.
What Do You Have to Lose?
If you talk to a financial planner, they’ll probably tell you to carry enough insurance to cover your current assets plus your future earning potential. Your existing assets can include your home, your retirement accounts, your other savings, and your personal property. Your future earning potential is how much more you expect to make before retiring and is especially crucial if you’re early in your career.
Is There a Deductible?
Most umbrella insurance policies don’t have their own deductible. That’s because they only kick in after you’ve exhausted your primary insurance coverage. You do still need to pay any deductibles on your primary policy.
Request a Quote for Umbrella Insurance
Since umbrella insurance provides extra protection for relatively rare large claims, it is generally very inexpensive. Talk to your local insurance agent to request a quote. Contact innovante insurance and ask for Tammy.