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What is Umbrella Insurance? How Much Does it Cost?

  • Cars Explained
  • Renee Martin
  • 6 minutes

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Umbrella insurance is a type of liability insurance that protects you and your assets from expensive litigation verdicts. Let’s look at what it covers and how much it costs.

You might be under the impression that umbrella insurance is only for celebrities and the rich. However, that is far from the truth. With an ever-increasing number of lawsuits, this type of insurance is a must for everyone. Unfortunately, many do not buy this insurance either because they do not see it as necessary or do not know what it is. Here, we explain what umbrella insurance is, what it covers and how much it costs to make an informed decision the next time you shop for insurance.

Umbrella Insurance

What is Umbrella Insurance?

Umbrella insurance offers an additional layer of liability protection. It covers other valuable goods beyond your auto and home insurance policies. It offers bodily injury and property damage liability, covers rental property owners, and keeps your bank account protected if someone files a lawsuit against you. This type of insurance is available in $1,000,000 increments.

Your bank account may suffer severely if you are at fault in any of the aforementioned scenarios. While your existing policies may cover some of these things, there is a limit to the amount of coverage you get. An umbrella policy helps you cover any additional expenses you may incur and keep your finances safe.

Read: Get the right car insurance to prevent a haunting Halloween

Why do you Require Umbrella Insurance?

As mentioned above, your finances may suffer if you do not have this type of insurance. Accidents can happen to anyone. Hence, it is always better to be safe than sorry. If you injure someone in an accident due to negligence, you may be liable for medical expenditures, rehabilitative therapy, and lost income. This can quickly add up, and you never know how much the judge will order you to pay. Thus, it is essential for everyone.

The possibility of paying a big sum of money and the additional coverage this insurance provides should make a good case for why you might be better off buying a policy. Another advantage of umbrella insurance is that the cost of adding $1,000,000 of coverage is very reasonable.

Read: What does comprehensive insurance for your car cover?

How Does it Work?

Umbrella insurance covers the cost of defending oneself in a lawsuit and the percentage of a settlement or judgment exceeding the liability limits of your home or auto coverage.

If you do not possess this coverage, you will have to pay any expenses exceeding your home’s limits or auto coverage. The court may place a lien on your home if you cannot pay. Your earnings could be withheld, while your savings and other assets might be up for grabs.

Let us assume you had a car accident, and the injuries you caused to others cost $500,000. Assume your motor insurance policy has a $300,000 bodily injury limit. That means your auto insurance coverage will cover up to $300,000. But who is going to pay the remaining $200,000? That’s where your umbrella insurance policy comes in. It will cover the amount over your auto insurance policy’s limit up to the level you select for your umbrella coverage.

Read: Homeowners insurance: All you need to know

How Does one Qualify for Umbrella Insurance?

The eligibility criteria for umbrella insurance differ from one provider to the next. For homeowners and renters insurance, you will need personal liability coverage of $300,000 to become eligible.umbrella insurance cost

What Does Umbrella Insurance Cover?

Umbrella insurance covers claims that are too big for your other insurance policies, or that liability policy might not cover. Most of the time, umbrella insurance covers liability for:

  • Injuries
  • Property Damages
  • Lawsuits
  • Personal liability

What Does Umbrella Insurance not Cover?

Umbrella insurance protects you against liabilities. It does not cover your injuries or damage to your personal items. Depending on your policy, your umbrella insurance may not cover you for property damage or injuries. 

It may, for example, limit coverage for injuries or damage sustained while committing a crime or doing anything deemed dangerous. Read the fine print to find out what’s excluded from an umbrella policy.

Read: Renters insurance: All you need to know

What is the Cost of Umbrella Insurance?

Excess liability insurance isn’t expensive at all. According to the Insurance Information Institute, an umbrella insurance policy with $1 million covers costs between $150 and $300 per year.

However, you can’t easily add a million dollars of umbrella coverage if you only have the bare minimum of car and home insurance. Insurers will not allow you to get an umbrella policy unless you have a significant level of liability coverage on your vehicle and homeowners’ policies.

Before letting you add an umbrella policy, your provider would most likely require minimum liability coverage of $300,000 (or possibly $500,000) for homes and $250,000 per person/$ 500,000 per accident for bodily injury for auto insurance.

Some insurers may require you to have your auto and home insurance with them before issuing you an umbrella policy. Going with the same insurer may make you eligible for discounts, though. So it’s a win-win situation for both you and your insurance provider.

How to Buy Umbrella Insurance

Umbrella insurance is available from practically any major insurance company. Typically, they will want you to have home or car insurance coverage with them before issuing you an umbrella policy.

First, consider how much extra liability coverage you need and then speak with your agent about buying this insurance coverage. Consider searching around if your current insurance provider does not provide adequate coverage to satisfy your needs. 

Read: What is travel insurance and why do you need it?

Home insurance savings

Bottomline:

How much umbrella insurance do I need?
Your umbrella insurance should cover the same amount as your entire net worth. So, if you have $1 million in assets, you win. It would be best if you had that much umbrella insurance.

Does umbrella insurance cover lawsuits?
If you get sued, umbrella insurance pays for your defense costs, judgments, and court costs. It also protects you from liability for both bodily and non-bodily injuries.

Does umbrella insurance cover rental property?
Yes! Umbrella Insurance covers rental property.

How to Get Discounts?

Sure, adding umbrella liability insurance to your policy will raise your rates. However, there are ways to cut costs. Firstly, you could choose a higher deductible in your home or car insurance policy and save money on premiums. You could then use the amount you saved to purchase this policy. However, if you find yourself needing to file a claim, make sure you have enough money to cover your deductible.

The second method, probably our favorite, is to compare rates from several insurance companies. You can do just that by clicking the banner below.

Bundling your home, auto insurance and your umbrella policy can save you hundreds of dollars! Additionally, insurers frequently offer discounts to drivers over 50, responsible drivers, and people with good credit. So make sure you ask your insurance agent about the same.


Check out our blogs for info on finding top-rated airport parking, the best parking spots in your city, the most affordable insurance for your car, and affordable car washes near you.


 

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