Why do I need an umbrella policy?
Does your homeowners’ liability insurance offer enough coverage in the case of an incident? Umbrella insurance is a great way to make up the difference to ensure you and your family are fully protected from lawsuits and expenses. It’s less an issue of umbrella insurance versus homeowners insurance, but instead the two can work together to give you more insurance coverage.
Liability insurance, which is included in a standard homeowners insurance policy, is arguably one of the most important types of insurance. It protects your assets in the case that you are sued for damages or injuries. Your liability coverage would help pay for the cost of defending the lawsuit as well as any resulting judgments you’d have to pay if you are found at-fault for an accident.
But all liability insurance has a coverage limit. Once the limit is maxed out, you are responsible for the remaining costs out of pocket. For example, your homeowners liability limit is $100,000. Someone slips on your porch, they sue you, and you are found responsible for $120,000. Your insurance would pay up to the $100,000 limit, and then you would have to pay the remaining $20,000 out of pocket.
Your homeowners personal liability insurance might not offer a high enough coverage limit to fully protect you and your assets in the case of a serious liability incident. That’s where an umbrella insurance policy could step in. There are two kinds of homeowners personal liability insurance: bodily injury and property damage.
Bodily injury helps cover costs if someone is physically injured in or around your home and they require medical treatment. For example, a deliveryman slipped on ice on your porch or your child’s friend broke his wrist on your trampoline. This can help cover costs including medical expenses, nursing services, ambulance, lost wages, pain and suffering, funeral services, and lawyer fees for court.
Property damage helps cover costs if you do damage to someone else’s property. This doesn’t necessarily have to occur on your property, but it means that someone in your household is found at-fault for damaging someone else’s property. For example, your child throws a ball and it breaks the neighbor’s window. Property damage liability would help pay for a window replacement. Or if you bring your dog to a friend’s house for a party and the pup pees on the carpet, then property damage liability could help replace the carpet.
The minimum home insurance liability is usually $100,000, while the max is usually around $500,000. The majority of homeowners policies come in with $100,000 in personal liability insurance, which is often not enough in the case of a serious accident. One bodily injury claim could easily eat up $300,000 or more from lawyer and medical bills to pain and suffering. When homeowners liability isn’t enough, umbrella insurance is next in line to protect you.
An umbrella policy is essentially an extra layer of liability coverage. It steps in when your homeowners or auto insurance liability isn’t enough to cover the cost of damages in a claim. Umbrella insurance has much higher limits than the standard homeowners’ policy. Umbrella limits start at $1 million and can provide up to $5+ million in coverage.
Umbrella insurance only covers liability, not any of your own costs. It’s an extra layer of security for bodily injury and property damage liability, as well as any auto or boat insurance liabilities. It also protects against libel, vandalism, slander, and invasion of privacy. It will not cover any damage to your own property or anyone in your household.
Umbrella policies offer a high limit of coverage for a low premium monthly cost. We usually recommend that everyone look into an umbrella policy to protect against any and all rainstorms.
You’ll especially want to consider umbrella insurance if:
- Your assets significantly exceed your homeowners’ liability limits
- You have a lot of savings and assets
- Your home has attractive nuisances, like pools and trampolines
- You own a dog, especially more aggressive breeds of dogs
- You’re an active landlord
- You participate in sports where you could injure others, including team sports, skiing, surfing, and hunting
- You volunteer or serve on the board of a nonprofit
- You regularly post reviews of products and businesses
The items listed above increase your risk of doing damage to another party. For example, volunteering puts you at risk because a lot of nonprofits don’t have volunteer insurance. If you said or did something that harmed someone you were serving, you would personally be on the hook for those costs. If you’re putting yourself at risk in any way, umbrella insurance is the best means of protection.
THE BOTTOM LINE
You are fully responsible for any lawsuit judgment if you are found at-fault for an accident. So, if your coverage limits are low, you could be forced to sell an asset—like a car or home—in order to pay out the lawsuit. Increasing your liability limits with an umbrella policy is a lower-cost way to help protect yourself financially, no matter what storm rains on your parade.