How Umbrella Insurance Coverage Can Save You

Wondering how umbrella insurance can save you? Appropriately named, umbrella insurance coverage is the protection you save for a rainy day because it serves as a safety net when the cost of damages exceeds the limits of your policies, like homeowners and renters insurance. Umbrella coverage is very simple to purchase and can save you from a large claim exhausting your liability limits and finances.

Read on to learn about how umbrella insurance protects you. If you want to start shopping for umbrella insurance for your home today, use our free quote tool.

Umbrella Insurance Explained

Have you ever found yourself in a legal battle because someone else’s property was damaged? Has your child ever hurt anyone with that new car you bought for them? Need some help because your dog accidentally bit the neighbor’s son?

If you’ve been in any of these situations, you probably have heard of an umbrella insurance plan. Umbrella insurance coverage provides liability coverage above what is provided under your insurance and is provided by a number of providers, such as MetLife.

Learn more: Does MetLife offer umbrella insurance coverage? 

Think of your liability insurance as a raincoat — it protects the areas of your body it covers. But what about your legs? Those are likely to get wet because your coat doesn’t protect them. What happens if you are carrying an umbrella? Its width span is larger than your rain jacket, so the protection it provides is greater. This is sort of how umbrella liability insurance works.

TIP: Before you finalize your insurance policy, ask your agent about umbrella insurance coverage. Adding it to your policy may not be expensive and can be extremely important should a disaster occur.

This is commonly referred to as second-tier or second-layer insurance since umbrella coverage kicks in only after you exhaust your personal liability coverage in your primary policy. Second-tier policies save money in the long run by adding increased protection, and they have a lower premium because your first-tier coverage will cover a large majority of incidents.

TIP: The average homeowner’s liability coverage limits are normally $300,000 to $500,000. It is not uncommon today for a claim to exceed your liability limits. Umbrella coverage would step in once you have exhausted your underlying limits.

While you can purchase a personal umbrella rider, this coverage is often sold as a stand-alone policy. Most insurers who offer umbrella coverage require increased liability limits under existing insurance policies before offering this coverage.

This means when you purchase umbrella insurance coverage for a home, for example, the insurance company will ask that you increase your underlying limits on your homeowner’s policy from, say, $300,000 to a minimum coverage of $500,000 in order to maintain your umbrella policy. This is also to give the insurance company a cushion of added liability protection that you must exhaust before they have to pay out more money through umbrella coverage.

Learn more: Why You Need Home Insurance Liability Coverage 

TIP: Adding to your liability limits will increase your premium payments. Take the time to decide whether you need an increased limit before you purchase umbrella coverage.

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How Umbrella Insurance Protects You

Umbrella insurance coverage provides protection above the lower liability limits of homeowners insurance coverage. You can purchase umbrella policy coverage in increments such as $1 million, $2 million, and up to $10 million.

For example, if your dog was in a bad mood and accidentally bit the neighbor’s son, umbrella insurance will help with medical expenses and possible lawsuits.

Take a look at some of the items below that are covered by your umbrella policy:

• Personal injury or property damage caused by you, members of your family, or hazards on your property for which you are legally liable. This includes “attractive nuisances” such as swimming pools and trampolines.
• Personal liability coverage for occurrences that take place off your premises. For example, if your dog bites a neighbor (learn about dog bite injuries: do’s & don’ts).
• Personal liability coverage for occurrences you are found negligent in causing at a rental property. If you are a landlord, an umbrella insurance policy can be critical to protecting you from lawsuits.
• Lawyer fees when you have to defend yourself.

In a world where people can file a lawsuit over anything, you have probably often heard of family or friends who were sued and lost everything. So if someone’s after your hard-earned wealth, your umbrella pays the additional cost up to whatever limit.
Without umbrella insurance, one single lawsuit can take away everything you’ve worked so hard for.

What Umbrella Insurance Won’t Cover

There are also some things that an umbrella policy will not cover. Read your policy completely and make sure that you understand your coverage thoroughly.

Excluded from coverage are:

• Damages expected or intended by the insured.
• Liability arises from certain exotic vehicles, such as aircraft and jet skis. (Snowmobiles and golf carts are usually covered.)
• Damages to your own property. (Depending on how these were caused, your standard homeowner policy may cover these.)
• Liability arising out of business pursuits.
• Liability arising out of employment. (Doctors, lawyers, pharmacists.)

Umbrella insurance won’t cover property damages done by the owner of the property. Therefore, it only covers damages that other people do. Also, intentional harm or criminal acts you inflicted and the lawsuit that will come along with it won’t be covered by your umbrella policy. Business liabilities and flood damages won’t be covered either because those are covered under business insurance and flood insurance.

Deciding if Umbrella Insurance Coverage is Right for You

Determining if an umbrella insurance policy is right for you can only be answered by adding up your liability exposures. If you find that you have the potential for high liability exposure because you are or appear to be wealthy or you rent out the property, you do not want to find yourself overwhelmed by an uncovered liability claim.

Here are some questions to ask yourself to determine if umbrella coverage is right for you:

• Are you a landlord? Being a landlord can expose you to potential liability losses such as wrongful eviction or even improperly maintained premises that cause injury. While your primary liability coverage may cover this, the additional dollar amount of protection can be invaluable.
• Do you have a high net worth, or do you have a profession that is associated with a high net worth? If you are an individual with a high-earning profession, this could be a litigation magnet in and of itself. If your negligence causes an injury and the other party finds out you are wealthy or work in a profession associated with wealth, then they may sue for more money.
• Do you have a dog that is a little aggressive or has been known to nip? A dog bite will result in a costly lawsuit if you are aware of the dog’s aggression.
• Do you have a swimming pool or trampoline? A swimming pool or trampoline on your property gives you the added risk of injury or death. Learn more: Homeowner Swimming Pool Liability 

If you fit any of these categories or if you have other circumstances that could expose you to a lawsuit, then you should consider getting an umbrella coverage policy.

IMPORTANT! Make sure your umbrella coverage is over and above your underlying limits. For example, if you purchase a $1 million dollar umbrella policy, this coverage should be $1 million above your $300,000 homeowners liability, giving you a total combined coverage of $1,300,000 in liability coverage (as opposed to your underlying limits being included in the $1,000,000 which would give you only a total of $700,000).

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Cost of Umbrella Insurance Coverage

The cost of an umbrella policy varies depending on the company and your coverage limits, but it is nominal compared to the hundreds of thousands of dollars of increased liability protection you will receive. When calculating the cost of coverage, insurance companies will take the same steps they do to set premium rates.

The company will look at what risks you are exposed to, what your credit score is, and whether or not you have been sued or filed claims in the past. Before you purchase an umbrella policy, make sure you get a quote from your insurance company so you can find an option that works for your budget.

TIP: This cost can also be shaved by a multi-policy discount. Most insurance companies will give you a discount for having both your home and umbrella policy with them.

Case Studies: Umbrella Insurance Coverage

Case Study 1: Protecting Assets From a Lawsuit

John, a successful business owner, was sued by a former employee for workplace discrimination. The lawsuit claimed damages of $2 million.

Fortunately, John had umbrella insurance coverage in place, which provided an additional $1 million in liability protection on top of his primary insurance policy.

The umbrella policy covered the remaining $1 million of the claim, protecting John’s personal assets from being seized to satisfy the judgment.

Case Study 2: Homeowner Liability Coverage Exhausted

Sara hosted a backyard party for her friends and neighbors. During the event, a guest slipped and fell, sustaining serious injuries. The medical expenses and potential lawsuit exceeded Sara’s homeowner’s liability coverage limit of $500,000.

However, with umbrella insurance coverage, which provided an additional $1 million in liability protection, Sara was able to cover the remaining costs and protect her savings from being depleted.

Case Study 3: Rental Property Liability Protection

Tom owned multiple rental properties and managed them himself. One of his tenants sued him for negligence after experiencing a severe injury due to a faulty staircase. The tenant sought $3 million in damages.

Luckily, Tom had umbrella insurance coverage that extended to his rental properties. The umbrella policy covered the $3 million claim, protecting Tom’s personal and business assets from being at risk.

Case Study 4: Auto Accident Liability

Emily was involved in a major car accident that resulted in multiple injuries and property damage. The liability claim against her exceeded her auto insurance coverage limit of $300,000.

However, Emily had umbrella insurance coverage, which provided an additional $1 million in liability protection. The umbrella policy covered the remaining costs, preventing Emily from facing significant financial strain.

The Final Word on How Umbrella Insurance Can Save You

An umbrella insurance policy is an extra insurance added on top of existing policies. It provides protection and coverage when your existing auto or home insurance policy limits are maxed and is beneficial for most people.

If you want to shop around for umbrella insurance coverage today, use our free quote comparison tool above.

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